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Cairn-Ace Ii: Underdoggs Great Lakes Institute of Management, Gurgaon
Cairn-Ace Ii: Underdoggs Great Lakes Institute of Management, Gurgaon
1. Subsidies-Beneficiaries
HSD- Retail consumers like Car owners, as almost every car has a diesel
variant and sell at a premium due to low cost of fuel, i.e, HSD. Also, recently subsidy was removed from bulk consumers and not retail consumers of HSD which created a distorted dual price regime. Diesel is cheaper than Furnace Oil, so instead of using Furnace Oil, many plants use Diesel instead. (HSD is a superior fuel than FO and a negative price gap with FO not only puts FO at a disadvantage but also encourages more use of diesel and exploitation of subsidies).
LPG- Middle-Higher class population, Commercial eateries and established
to disadvantaged sections Armed forces and commercial establishments. LPG - Households Kerosene Poor rural population.
In the past fuel subsidies were touching 2% of Indias gross domestic product According to (TERI), 76 % of the LPG subsidy goes to urban areas and nearly 40 % of the LPG subsidy is enjoyed by the wealthiest 6.75 % of the population
It shows that Indias fuel subsidies are both fiscally costly and socially regressive.
Clearly benefits are not reaching the intended targets for oil subsidy
So under-recoveries can be considered a major culprit behind the sentiment that we do not have enough explored oil & gas resources in our country.
1. Govt. could decide a threshold level of crude prices (say $100/bbl), below which all OMCs will
While some of these measures can be considered short-term fixes, we should have a clear long-term roadmap to eliminate the need of LPG and kerosene. This can be done by focusing more towards renewable energy like solar energy to light homes in the rural areas instead of Kerosene. 1 MW plant can be built with an outlay of Rs. 7.5-8 crores. OMCs are under-recovering Rs. 286 crores per day as of 16th June 2013. So spending 8 crores on a plant which can easily serve at least 5 villages cannot be considered far-fetched. Similarly, LPG can be replaced by providing and if necessary mandating Piped gas connections. Piped natural gas is a better, cheaper and convenient alternative but there are various lobbies in play against this development. One of them is the cylinder distributors lobby. Thus, politics comes into play.
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Direct cash transfer scheme needs better accountability and for that it needs better infrastructure, so that we do not create another monster in order to slay one.
So all in all we need to empower the poor and stop pampering privileged classes of our population.
5.
4. Subsidy - Conclusion
It is evident that subsidy mostly does not reach its intended beneficiaries but we cannot
ignore the needs of the poor people and direct cash transfers has promise.
For decades we have held the belief that giving direct money to the poor is bad and they
will spend on bad activities. Now that subsidies have created hoarders and black marketers all around, we need to put our faith in the people who actually need the money and trust that of 10 households getting the money at least 3 or 4 will put the money to good use from the outset and then later on with their progress as a yardstick other households will also straighten up. This happened in Kenya, why cannot it happen in India.(source: http://econ.st/1d8Ea39) be met, like solar plant, biomass plant, etc.
As we go on transferring the money, we also create other avenues for their energy needs to
For getting in the renewable energy into the fold we can provide incentives like tax holidays,
Government can pump in cash into these projects directly and create a multiplier effect for