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|While India's opposition parties are
agitating against moves by the pro-reform government of Prime
Minister Manmohan Singh to remove subsidies on petrol and other
fuels, experts say the country has laboured too long under price
distortions that have not benefited poorer people -- or the
On Jun. 25 the government bit the bullet and totally deregulated
petrol prices, resulting in a 6.7 percent jump in the price of the
prime automotive fuel. The price of diesel was raised by five
percent -- though deregulation was deferred to a future date on the
consideration that it drives tractors and irrigation pumps in the
price-sensitive rural sector.
The government showed determination by reducing subsidies on
liquefied petroleum gas (LPG) or cooking gas and kerosene, the fuel
used for cooking in millions of Indian homes.
In reaction, opposition parties, including the right-wing Bharatiya
Janata Party (BJP) and the communist parties of the Left Front,
mounted a crippling nationwide general strike on Jul. 5, but the
government has remained unbending.
''It is an unpalatable decision but the people will understand why
we have had to take this decision,'' said Manish Tewari, spokesman
for the ruling Congress party.
The country's state-run petroleum companies have also served notice
that they cannot go on absorbing the cost of the subsidies --
currently estimated at 17 billion dollars annually -- given the
vagaries of international prices on a largely imported commodity.
India is also keen to fall in line with global trends to shift its
economy to a low-carbon trajectory, as advocated by the latest World
Economic and Social Survey and other studies, through the
elimination of subsidies on fossil fuels.
''At a time when global warming is a concern no responsible
government can be seen to be subsidising fossil fuels,'' Anumita
Roychowdhury, associate director at the Centre for Science and
Environment (CSE) told IPS.
According to estimates by the International Monetary Fund, global
consumer subsidies on petroleum products had galloped from 60
billion dollars in 2003 to 520 billion dollars by 2007.
In India, however, more than the environmental concerns, gross
anomalies had crept into the pricing of petrol, diesel, LPG and
kerosene, resulting in larger-scale diversion of these petroleum
products into unintended uses by profiteers.
One example is the diversion of about 40 percent of kerosene,
subsidised to help poorer households, into adulterating diesel.
Apart from losses to the exchequer, the practice has been shown to
reduce the life of diesel engines and increase atmospheric pollution
through improper combustion.
Similarly, subsidised LPG was found to be regularly diverted into
the running of automotive petrol engines. The fact that LPG is
chemically similar to petrol and that only very slight modifications
were need to be made to petrol engines greatly facilitated the
But nowhere was the mismatch between policy and practice more
glaring than in the cross-subsidising of diesel with higher prices
on petrol -- based on the belief that petrol was used by the
well-to-do to run their cars while diesel went mostly into the
tractors and irrigation pumps run by farmers.
The result was a spurt in demand for diesel-driven luxury cars and
sports utility vehicles (SUVs). According to Roychowdhury, an
authority on automobile pollution, there has been a steady
''dieselisation'' of India's automobile fleet, threatening to foul
the air over most of India's cities.
''India does not have clean diesel fuels or the technologies that go
with them. And then there is the serious problem of kerosene finding
its way into diesel supplies as a major adulterant,'' Roychowdhury
According to Roychowdhury some 30 percent of new cars sold in
India's automobile market run on diesel and that this figure, she
says, is expected to reach 50 percent in the next two years.
''You are looking at a situation where people who maintain luxury
cars or SUVs running on diesel are having their fuel
cross-subsidised by people who run small petrol vehicles or
motorcycles -- or even on kerosene diverted from the kitchens of the
poor,'' she said.
''The price asymmetry has had the unintended consequence of creating
an incentive for motorists to opt for diesel rather than gasoline
cars,'' agrees Kaushik Ranjan Bandhyopadhyay, senior fellow at the
New Delhi-based Asian Institute of Transport Development.
Citing a report created for India's 11th Five Year Plan,
Bandhyopadhyay told IPS that 71 percent of India's personal vehicles
were petrol-driven two- wheelers, which provide cheap mobility for
the ''aspiring classes, and the climbers.''
Bandhyopadhyay told IPS that the subsidy on LPG created even more
glaring anomalies in that, instead of catering specifically to the
worse-off or worst- off (below poverty line) section, it largely
benefited ''the affluent urban middle-class.''
The illegal diversion of LPG cylinders designed for use in kitchens
into automobiles not only ate away subsidies but was also a safety
hazard, Bandhyopadhyay said.
''A number of evaluation studies and reports by government
committees have shown that the policy of providing kerosene at
subsidised prices to consumers regardless of their economic status
resulted in wastage, leakage, adulteration and inefficiency,''
''More than 70 percent of the rural poor and more than 20 percent of
the urban poor continue to be dependent on direct burning of fuel
wood or biomass for cooking, defeating the purpose of encouraging
the use of a cleaner cooking fuel, through subsidies, and failing to
relieve 'energy poverty','' Bandhyopadhyay added.