Government Talks of Withdrawing Subsidised Diesel

04 August 2011 - Which Way to Pay

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Government Talks of Withdrawing Subsidised Diesel

A Government announcement in New Delhi today indicates that car owners may lose the subsidy of Rs 6.08 per litre on diesel. This news comes as figures show that passenger cars now consume about 15% of the country’s total diesel consumption.

India imports about 75% of its total crude oil requirement. The Finance Minister Pranab Mukherjeesaid out of total consumption of diesel, 10% is used by industry, 6% by railways, 12% by the agriculture sector and 8% is used for power generation. The most diesel consumption without doubt occurs on India’s roads with 15% by car owners as well as buses and trucks consuming 12% and 37% respectively.

Mukherjee said in response to a debate on price rise in the LokSabha:
"...we can accept your (Opposition) suggestion and try to work out what mechanism could be found out so that this section (diesel car owners) are not subsidised,"

The price of petrol is linked to market rates whereas the government compensates oil marketing companies for losses on account of the sale of diesel, kerosene and cooking gas (LPG) by means of subsidies and oil bonds.

Evidence of the Government’s need to keep finances under wraps came in June when the custom and excise duties on petroleum products were slashed. This aimed to mitigate a consumer price hit but resulted in a revenuehit of Rs 49,000 core per annum. However, being aware of the expense of living associated with fuel, the change in Government direction to free the price of diesel and LPG will not affect the subsidy on kerosene which is most commonly used by the poor.

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