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Increase of prices on diesel and cooking gas – financial reform ?




For some time now, there has been a lot of pressure on the Government to take steps that demonstrate financial reform. These are in many varied areas such as allowing increased foreign investment in the pension sector, in airlines; allowing 100% foreign ownership in retail, reform in labour sector, and in reform of the petroleum sector (these are only some of the areas where there is need of reform). However, the Government has been unable to bring in reform because of its inability to push some of these through its allies (and partly because the Government is not willing to spend the political capital to push these reforms, and also apparently because there is no stake of the Congress leadership in getting these reforms in place).
Reform of the petroleum sector was one of the measures that has been attempted to be in place for so many years now, ever since the NDA declared a price decontrol of the petroleum sector (or atleast claimed that this had happened); however, owing to the delicate political situation with regard to fuel prices and the sensitivity of people (and more important, for the politicians) to such price hikes, the Government has always retained control of such hikes and timing these hikes for times which are deemed less significant.

For some time now, the Government has been under pressure to increase the hike of diesel, with the push that the lower rate of diesel is pushing private car owners to diesel owning vehicles, but these were not supposed to be the intended beneficiaries of the lower rate of diesel. There has been an open debate going on for quite some time about how to handle this discrepancy, and it seems like the Government finally bit the bullet and decided to go for the price increase. The argument is that oil companies have been taking a hit by selling these fuels for cheaper than it costs them, and hence their overall financials are in a big hole. The inability of the Government to adjust these prices was being seen as a reflection on its inability to take tough financial decisions, and now, there will be a push by the Government to declare that it is serious about taking measures for the economy.
In my view, everybody who accepts this is guilty of blinkered thought. As of now, if you take the prices of major fuels, these are all high because there is a high element of tax, upto 50%. So if you pay Rs. 80 for a litre of petrol, Rs. 40 out of that go towards the Central and State Government for tax. So, now if they sell you this petrol for Rs. 70, they claim that there is a subsidy of Rs. 10, while the truth is that they are actually collecting less tax, but still a sizable amount. These Governments are drunk on this tax and the amount of money it gets them to play politics with. We know that tax money is used for spending on education, on infrastructure, for social benefits and so on, but the criminal part in all this is the diversion of money.
This Government has spent the maximum amount of money on social schemes, but any audit look at these schemes reveals the huge diversions inherent in these schemes, along with the inability to meet their targets (and a number of these targets would have been met if they had reduced the corruption inherent in these schemes). Because there is a huge amount of diversion, which the Government does not seem to be taking any serious steps to control, they keep on needing larger sums of money, and hence you have the Government having to tax more and reduce these so-called subsidies. Take another concept – we pay the Government taxes to build infrastructure and if ministers in the surface transport ministry were not corrupt, there would be no reason to ask commuters to pay tolls for new roads.
In a nutshell, if you want my message in a clear and simple statement, the reason why the Government wants these huge sums of money is that it is unwilling to prevent corruption and diversion, and you, the taxpayer, are actually paying for the corruption; the Government will keep on finding more ways to get money out of you.




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