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Government mulls cut in subsidies, diesel price hike - Views on News from Equitymaster
 
 
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  • Nov 18, 1999

    Government mulls cut in subsidies, diesel price hike

    With the likelihood that it will exceed the 4% of GDP target set for the fiscal deficit, the central government is actively considering plans to cut subsidies and review the price of diesel, another subsidised product.

    The subsidy on account of LPG and kerosene is estimated to be approximately Rs 120 bn for the current fiscal year. As a percent of the targeted fiscal deficit, LPG and kerosene subsidies amount to 11.4%. The deficit of the oil pool account is estimated to be in the region of Rs 48 bn (4.5% of the targeted fiscal deficit) for the current year. The government has realised that in order to control the burgeoning fiscal deficit it should reduce subsidies.

    Although it is apparent that subsidies need to be rationalised, the political connotations of the move must also be considered. A cut in subsidies will strengthen the opposition in the Parliament and could also lead to dissidence within the party. This could weaken the newly formed government. The government needs to draw out a time frame for dismantling subsidies while at the same time ensuring that the needy segments of the society are taken care of. However, this should not weaken the case for the dismantling of subsidies.

     

     

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