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Indian Government fails to Rein in Fossil Fuel Subsidies despite Favorable Political Position

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The Indian Government failed to pass a law reforming the structure of state subsidies to the Oil sector .The Meeting between a empowered committee of Indian ministers was expected to loosen the control over prices of petrol,diesel and cooking gas.However the Government failed to make any headway citing high inflation as a reason to delay critical reforms in this sector.India’s State Oil Companies face the brunt of these price controls facing huge losses by subsidizing the cost of petroleum products.The Indian government  periodically issues Oil Bonds when the Losses by the Oil PSU’s becomes too great for the companies to bear.Note the subsidies are mostly a complete waste not reaching their target segment as most of these products are consumed by India’s well off classes.The Cooking Gas subsidy is the most obvious example of this waste.No one amongst India’s poor can afford Cooking Gas using mostly Kerosene or Wood .

India which has been mostly ruled by Coalition governments in the last 20 years has never possesed the political will to implement  unpopular reforms in the Energy sector.But the UPA coalition this time which has the Congress Party as a Dominating Member had raised hopes that they could  pass some unpopular reforms.The government has managed to pass some Reforms in the Social Sector like Education and Female Empowerment,however the Government has failed to muster the Political Will in the case of Oil Subsidies.India’s State owned Oil PSU’s whose stocks had risen with the expectations of Oil Reforms have fallen back once again.

India Delays Fuel Price Decision Amid High Inflation – Bloomberg

India delayed a decision to raise prices of fuels including gasoline and diesel on concern higher costs will stoke inflation, already running at the fastest clip among the Group of 20 nations. Shares of state refiners fell.

Ministers led by Finance Minister Pranab Mukherjee met yesterday to discuss a recommendation made by a panel in February that India free gasoline and diesel prices from state control and increase kerosene and cooking gas rates. The group is likely to reconvene in 10 days and a decision may be reached then, Oil Secretary Sthanunathan Sundareshan said in New Delhi.

Raising prices will help the government cut expenditure on fuel subsidies, which were 260 billion rupees ($5.5 billion) last year. India, which more than doubled prices of natural gas sold by state-run Oil & Natural Gas Corp. and Oil India Ltd. last month, is seeking to limit losses of state refiners that help cap inflation by selling fuels below cost.


Sneha Shah

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