Stand firm against populism
The Centre must stand firm and not give in to the gratuitous talk of rolling back the belated hike in petrol and diesel prices. Given the continuing rally in international crude oil prices, the call for cutbacks is disingenuous and politically irresponsible. Gross, open-ended subsidies on petro-products would wreak havoc on already strained budgetary resources, and ruin the finances of oil marketing companies. Unalloyed consumption subsidies make no sense. They simply distort relative prices and thoroughly misallocate scarce resources. Already, despite the price revision, the government would need to issue oil bonds of the order of Rs 28,300 crore just to make up for the accumulated under-recoveries of oilcos. The latest tranche would be over and above the Rs 11,500 crore issued only a few months ago. All such bonds would need to be redeemed (with interest) from the general budget and would inevitably be at the cost of far worthier, more pressing governmental expenditure.
Note that planned expenditure on the capital account is budgeted at under Rs 29,000 crore for this fiscal as a whole. Yet, questionable consumption subsidies on oil products is almost the same! The cost of subsidy needs to be met through current provisioning without the frequent recourse to oil bonds. It merely compounds the economic and financial costs of run-away populism, and right across the board too. There remains an entirely valid case for moderate, specific levies on oil products. The current practice of ad valorem duties are clearly distorting given the sustained rally in imported prices. That said, the decision not to revise prices of cooking gas and kerosene is both fiscally imprudent and politically retrograde. The subsidies on LPG and SKO would add up to Rs 25,000 crore and more, per annum. In effect, the government wants to drive home the message that it is quite alright, for instance, for LPG consumers to wallow in unrevised prices today so that the entire populace pays for the higher prices tomorrow (or whenever the oil bonds are redeemed) with interest and all!
-- The Economic Times Editorial
Note that planned expenditure on the capital account is budgeted at under Rs 29,000 crore for this fiscal as a whole. Yet, questionable consumption subsidies on oil products is almost the same! The cost of subsidy needs to be met through current provisioning without the frequent recourse to oil bonds. It merely compounds the economic and financial costs of run-away populism, and right across the board too. There remains an entirely valid case for moderate, specific levies on oil products. The current practice of ad valorem duties are clearly distorting given the sustained rally in imported prices. That said, the decision not to revise prices of cooking gas and kerosene is both fiscally imprudent and politically retrograde. The subsidies on LPG and SKO would add up to Rs 25,000 crore and more, per annum. In effect, the government wants to drive home the message that it is quite alright, for instance, for LPG consumers to wallow in unrevised prices today so that the entire populace pays for the higher prices tomorrow (or whenever the oil bonds are redeemed) with interest and all!
-- The Economic Times Editorial
posted by Loco at Thursday, June 08, 2006
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