Monday, August 6, 2012

Transport benefits most in diesel subsidy

                                                        Data Source: Business Standard

The Government of India has drawn a lot of flak recently for its inertia with regards to fuel price reforms. As per a study done by leading financial daily, subsidies doled out on diesel are finding their way mainly to transportation sector and that too in private hands. Today's chart shows that transport sector accounts for nearly 67% of the subsidy benefits. Prominently, the truckers and cars account for nearly 45% of the total subsidy bill. On the other hand, the agriculture sector, on which the Government rests its case accounts for a mere 12.3% of the subsidies. With a flawed subsidy system leading to dieselization of economy, one should expect the share to go up. The argument that linking diesel prices to market prices will lead to inflation doesn't hold water either. Higher fuel subsidies and huge fiscal deficit are feeding the vicious circle of low growth and high inflation anyway. If it is well being of the farm sector stalling reforms, there is a better way to take care of it. The sector will be better off using direct cash subsidies and strong price support system. It's time that the Government stops coming up with lame excuses and bites the bullet of fuel reforms.

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