An study on Subsidy,Subsidy Administration, Subsidy Reforms in India.

1. Continuing from last year, Energy Security…
here comes The Challenge
TEAM OIL BELLWETHERS
Nishad Patil
Ashish Pandita
Siddharth Mishra
Hardik Shah

2. The actual beneficiaries of oil subsidies in a true sense
16 lakh diesel cars sold
last year
15% of nations’ diesel consumed
by private car owners
These facts show that subsidies are
benefitting people who can afford to buy
fuels at higher rate.
Energy subsidies help
rich on the expense of
poor.
Christine Lagarde
LPG consumption
9% of Rural vs 62% of urban population

3. The Inconvenient Truth
Crude oil products
such as kerosene and
LPG are some of the
most misused
products.
Misused Products
Kerosene, intended for
public distribution
system; is often mixed
with petrol and sold at
petrol prices to masses.
Kerosene blending
Rate of LPG for
commercial and domestic
uses are different; the
later being cheap due to
low taxes and more
subsidies. But, the gas
agencies often sell
cylinders meant for
domestic use to ones
using it commercially.
LPG black market

4. Some Facts!!!
• Oil sector subsidies have become a new sacred cow to be
milked freely to generate large amounts of black money to the
extent of USD8 to USD10 billion per year.
• According to IMF, bottom 40% of income distribution receives
only 15-20% of fuel subsidies.
• Fuel traders or agents are often directly or indirectly linked to
the political establishments and they are minting huge profits
by diverting cheap fuel; when country is loosing valuable
foreign exchange in order to import crude oil.

5. Subsidy Impact on the Upstream Oil
Companies
•
•
Initially upstream companies have to bare the cost of subsidies.
Government gives ex-facto cash assistance.
Subsidies
HIGH RISK
•Take Loans
•Invest
•Take Loans
•Invest
Subsidies
•Profits
Even after the cash assistance from the government approximately 40% of
the burden is borne by the company.

6. Subsidy Impact on net import
Ever Increasing Demand
+
Lack of Domestic Sources
Nullifies the effect
of subsidies.
Crude Import
Adverse Effect on
the Economy
Prices of other
commodities
increases
Rupee depreciates
against U.S. Dollar.
Increasing import bill and falling rupee value takes India’s position as an importer
to the higher level.

7. Subsidy Reform
Petrol: Already liberalized
But final control of prices depends
on politics, electoral cycles as major
OMCs have large govt. intervention
Gradual disinvestment from
govt. should be implemented.
Allowing the mixing of Ethanol in petrol up to 10% will
reduce the crude import by a huge margin and that will
strengthen Rupee and will help in petrol price reduction
and control. (India is in the top 3 sugar producers and
most of sugar factories are producing Ethanol from
slug.)
Blending Biodiesel with
Diesel can also be hoped.
Every vehicle
manufacturer gives the
specifications for Biodiesel
blending.

8. Amending the Fuel Pricing Policy
Subsidy Reform
•
LPG & prices are
Diesel
In India fuelKerosenedecided by Trade Parity
Restricting the Supply
• from IPP(Import Parity
Pricing(TPP). 80% of which comes15% India’s Diesel Consumption
- High Income 20% from XPP(Export Parity Pricing).
from Economically Advanced Class.
Pricing) andFamilies
(monthly income above ₹50,000 )
• Abolishing Diesel Subsidies will
• Prevent Black Marketing of
Result in Inflation
India is net importer of crude oil but is a net exporter of
Cylinders
• Selective Subsidy Concept
refined petroleum products due excessive refining
• Avoid selling similar products at
– Private Diesel for Higher Prices
vastly different prices to prevent
capacity.
– Payment through Credit Cards
diversion losses (Kerosene and
Diesel, Domestic LPG and
only.
Commercial LPG)
If the percentage of XPP in TPP is increased fuel prices will
– Data Collected from RTO
• comeGas Connections
Piped down considerably and under-recoveries can be
Offices.
– Submit &
prevented. Surrender Cylinders
– Prohibit Supply of Subsidized
Fuel to Govt. Officers.

9. Public Subsidy Reform
Awareness Campaign
• Reducingsubsidies, Social safety nets
• Instead of the corruption…the greatest challenge! Indirect
ways: transfer programs seeking to prevent the poor or those vulnerable
– are
 to shocksBPL surveys tofrom falling below a certain poverty level.
Accurate and poverty ensure proper targets and the extent of the work
needed to be done. Pilot projects to understand full fledged implementation.
supplementary
Fee waivers and
feeding
exemptions for
Conditional
In-kind
 Smart cardprograms and
system: Market driven kerosene prices and available at subsidized
health care,
Cash transfers
cash transfers
transfers
food stamps,
rates only to smart card holders. (Linking the subsidies to UID)
schooling and
vouchers, and
utilities
coupons
Alternate
Energy Sources
Social safety nets
Solid Waste
Management
Village Level
Biogas Plants.
Hybrid Cars
and Bikes
• Development of a program on the lines of The US Low Income Home Energy
Assistance Program (for low income households)

10. Against or For?
Considering the number of BPLs in our country sudden and entirely
abolishing subsidies is not fair.
Subsidy on Diesel should be selective.
For LPG no subsidy to high income families.
Kerosene: Subsidies have to be maintained as it is still basic fuel for poor
India, but measures should be taken to prevent it’s diversion and misuse.