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The solution to India's energy woes
Wed, 9 Jan Pre-Open

Energy is considered to be the backbone of any economy. The same is true for India as well. It is unfortunate that the energy sector is one of the most mismanaged and inefficiently run sectors in the country. We keep hearing and reading how the regulated fuel pricing system and subsidies on the sale of regulated fuels such as diesel and LPG have led to the huge fiscal deficit. Recently, the Prime Minister Mr. Manmohan Singh stressed the need to curb fuel subsidies and for a phased rationalization of energy prices to achieve the growth target. Clearly, the only way Government thinks of doing so is phased hike in the fuel prices leading to high inflation in the economy.

So is there a way to remove subsidies and bring more investment into the energy sector without over burdening the common man? In the name of reforms, the Government had deregulated petrol prices few years back. Few months back, the prices of diesel were increased. However, such steps are unlikely to help either common man or the sector. This is because the real culprit behind flawed energy pricing system India is not subsidies but huge taxes that the Government levies on the basic fuels. These irrational taxes charged on fuels has only beneficiary - the Government. At the same time, it is the common man who is the ultimate victim. Infact, the huge subsidies that on the surface look like Government's charity to common man are just a fraction of exorbitant taxes levied on fuels.

Hence, the key to rationalization of energy prices lies in rationalizing taxes on fuels and not in increasing fuel prices. We hope the Government takes necessary steps to cut down huge and multiple taxes instead of emphasizing on the need to curb subsidies for which all it intends to do is a price hike and make the common man more miserable. While there is a need to remove subsidies to bring more investment in the energy sector, there is also a need to ensure adequate fuel supplies to the common man at affordable prices. Without the latter, the target growth will remain a distant dream.

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