The Hindu Business Line : A new thought on petro subsidy

IT HAS been known for decades that subsidised kerosene does not reach the poor, for whom it is meant, but is used by unscrupulous persons who make substantial profits by adulteration.

Remedies to prevent the adulteration of kerosene have included dual pricing and colouring it.

LPG already has some sort of dual pricing in place for commercial consumption and the Petroleum Minister is contemplating one for domestic cylinders to reduce the subsidy of about Rs 190 per cylinder.

Dual pricing for petrol would protect the poor by charging a few additional rupees from the rich and reducing the price paid by the poor.

The principle of protecting the poor through subsidies has been used for decades, as also the concept of making the rich pay higher prices compared to the poor. But the previous government had resolved to do away with controlled/subsidised prices for petroleum products in a phased manner.

The country has a large number of citizens below the poverty line. It is necessary to develop a profile of its poor and define their lifestyle. Is a carpenter, a plumber or a mason, who uses LPG for cooking and rides a scooter to work, a poor man?

Or will a primary school teacher, a peon or a clerk, who uses gas for cooking and public transport to work, qualify as one? Is a farmhand or an unskilled labourer, who uses kerosene and public transportation system, a poor man? Does the nation accept an unemployed educated youth as part of the poor?

Do we have dependable data on which to base our plans? For example, do we accept an educated youth to be unemployed if he has no job at all and will accept whatever is offered or are do we consider a youth to be unemployed if he is looking for a suitable assignment and not any job?

Further, can we quantify poor in each category and build a lifestyle around each group of poor?

Unnaturally depressing the kerosene prices or differentiating between domestic and commercial usage of LPG or usage of gas by the poor and rich will result in corruption to a varying degree. It would also introduce an additional burden on law enforcing agencies.

With most known approaches ruled out, perhaps the solution is another kind of cross-subsidisationLet the actual commercial prices of petroleum products prevail. So, prices of kerosene and LPG will rise.

But use the additional revenue from these products, used in fairly large quantities, to price petrol and diesel lower. So, under the changed prices, a poor household may pay about Rs 60 for kerosene or Rs 150 for LPG, but much less on transportation costs, either public or private using petrol. This should also have a favourable effect on the economy.

It has to be ensured that petrol and diesel prices are reduced proportionately, thereby impacting transportation prices. Though the net effect of such measures on the poor may be marginal, the benefits of these rationalised prices to the administration and in curbing corruption will be tremendous.

Kerosene and gas will be readily available. Availability of unadulterated petrol and diesel will lead to efficient performance of the transportation sector and even result in a marginal reduction in the overall consumption of petroleum products.

(The author is a former Group Captain, IAF.)