THE SIMPLE SUBSIDY SOLUTION

There is no second thought about OIL is POWER today. It is pretty evident from chinas rampant acquisition of international oil fields and USAs hard strived and continuously challenged supremacy as the leading gas and oil producer that countries have to choose, whether they would become energy sufficient or they want to be able importers. Being a rational importer should not be considered ill because if a country lacks resource, it needs to make up that loss with able management of imports and export aided by a strong business model strengthened by well-planned policies. With that in mind, our team stroke at the base of current discord, the heart of INDIAN fuel-policy i.e SUBSIDIES. The subsidies are profitable considering that it maintains the market and customer cordiality when there is unpopularity of govt. coupled with the civil unrest about inflation. Also, for the people who are incapable of easy purchase deserve to maintain their livelihood even in the times of economic weakness of the nation. Subsidies ensure this. This also cushions frequent and undesired market fluctuations presenting us a more permanent market scenario to work on and plan for. However due to this, a sense of irresponsibility in citizens regarding these non-renewable resources because they are saved from rising international prices. Also, the NOCS E&P activities take a hit because the financial risk and their share in subsidy dont leave them with many options. Among other things it is worth noting that what, our subsidies are aimed at the people who are needy or belong to rural background. However Kerosene is used more in Urban than in Rural areas. Also, less than 40% population are using LPG. Hence most of the population whose needs fulfilled are financially capable ones. Most of the subsidized product i.e. LPG used for home usage will be effectively available and distributed in urban zone, so most of the benefits of subsidies will be taken by urban people. The E&P activities by the upstream companies are adversely affected by hindered cash flow and damaged profitability because the upstream companies need to pay a part of the subsidies. More E&P activity both inside and outside India will provide us more oil to increase the forex reserve that will in turn strengthen India's position to import oil. It would be foolish to remove subsidy due to its gains but a full-fledged subsidy is dangerous considering its banes. So it is proper to introduce subsidy in the form of steps leading to deregulation. Apart from deregulations, we should lay down some policies. For e.g., pricing policy should be export parity pricing (XPP) oriented rather than import parity pricing (IPP). In case of diesel decontrolling price from Rs.0.5/lt to a fixed rate of around Rs 1 /lt per month and simultaneously adding cash transfer to BPL & green card holders seems like a valid option. And when we have done that we can introduce Automatic Pricing Mechanism. In case of LPG reforms we must curtail cap and amount of subsidy on subsidized cylinder from 9 to 4

in 5 years by reducing 1 each year respectively and provide direct support to lower-income households to transition to cleaner and more efficient cooking fuels through Cash Transfers. For kerosene we will reduce subsidy on PDS kerosene at the rate of Re. 1 per month and simultaneously implementing cash transfer for low income house hold amounting to the decrement in subsidy at that time. At the end of the subsidy the price of the kerosene would be controlled by automatic kerosene pricing mechanism. The level of cash transfers should be determined as the unit subsidies on kerosene and LPG times their existing rationed quantities. We will target proper group through Identification of BPL and APL through UID cards and considering inclusion of lower middle income groups in early stages to reduce political barriers to reform. The times are bad and India has been weighed down with huge oil imports and worsening forex reserves. Add to it, the inseparable corruption that is eating away the positive effects of our attempts and policies. But the only thing that seems positive is that, we have the best brains at our disposal and are far ahead than many on the road to development. We are not short of resolve but we do need to be courageous enough to tread ahead and carry out necessary application and remediation of policies. Because when we have done that, nations will know as the DEVELOPED NATION.