The government must remove the subsidy on diesel, LPG and kerosene, and protect the poor from the impact through cash transfers
While the Centre had indicated that it was ready to bite the bullet and increase prices of petroleum products — mainly diesel — a few months ago, the combination of the slowdown in the economy, the drought and the political battles that the United Progressive Alliance was fighting on several fronts rendered the move unlikely. With the monsoon session of Parliament nearly over, however, it seems about to happen.
A little over a fortnight ago, the Prime Minister virtually ruled out the deregulation of diesel prices, in line with petrol. This was due to the failure of the monsoon and the demand by major grain growing States, Punjab and Haryana, for a 50 per cent subsidy on diesel for running pumps to irrigate their parched crops.
TREMENDOUS PRESSURE
The pressure on the national exchequer to keep the diesel price down has been tremendous. In 2010-11, the fiscal subsidy on diesel, liquefied petroleum gas (LPG) and kerosene — the three most highly subsidised fuels, accounting for two-thirds of petroleum product consumption — amounted to Rs 2,904 crore. To this, one has to add the “under-recoveries” of the government-owned oil marketing companies, which is the difference between the cost of these fuels and their selling price, in the absence of deregulation. In the same period, this amounted to Rs 17,156 crore, twice as much as the previous year. The total burden for 2010-11 thus amounted to Rs 20,060 crore.
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