And PS Rs rising against $ is a good thing.
Its due to the demand for Rs. This is due to increasing indian productivity in few sectors.
And since oil is purchased mostly in $ its better wrt oil purchases.

Removing subsidies will only distribute the burden over the entire population making economic growth slower and whatever opportunities that poor are getting today from participating in the economy.

The main problem is about finding a more fundamental lasting solution to our transportation problem.

It would do good for the government to keep the subsidies (and get vote banks) as well as to encourage growth in areas like alternative fuel and mass transport in a holistic form involving R&D, manufacturing, distribution and adoption.

1. It totally ignores the democratic political process / will. Political cadres represent the majority of Indian VOTING population.! To really make a difference, start voting the political agenda of your choice to power !
2. Does not consider the effects on inflation when one abruptly removes subsidy. Inflation needs to be controlled in a sustainable fashion. Otherwise it can be a demon. Imagine, inflation spiralling 10-11 % they way rupee has against dollar in a single financial year.
3. Subsidy is kind of payback to the taxpayer. A tribute to the taxpayer. A sort of intangible benefit for paying taxes honestly. Not all money should go to the gas-less, land-less poor ! It is a very similar argument by some folks that suggest to divert all money from defence expenditure to social causes – to fight poverty, promoting primary education healthcare etc. !

Your arguments are correct, and they make mathematical sense. However, I think that if we were to suddenly increase the price of petrol, then every commodity will get incredibly expensive. The lower middle class and the people who sell vegetables and other commodities in the daily market: they will be the worst hit, since they _have_ to pay for using petrol-run vehicles for their transport. That trickles into everything… bus fares, movie tickets, barbershop: how do we deal with that?

I totally agree that the rich – to be more specific, upper middle and middle class, the layer that is commonly known as govt servants are benefited.

1. Jobs are created and preserved for them.
2. No one else is allowed to compete in their areas – state monopolicies – resulting in massive inefficiencies.
3. Education is highly subsidized for the rich – (Atanu’s – Who Paid for My Education?)
4. LPG, Petrol, Diesel, Public Transportation (mostly urban areas), Electricity, etc
5 – 100. And the list goes on…

Strange as it may seem, I am not outraged by this subsidization of the rich. Allow me to explain my reasons.

Asheesh claims that the 70,000 crores would do “wonders to ensure that every child gets food & education”.

You claim that we should use the same money for subsidizing biofuel research. Lets say alternative energy. I would say alternative energy and not biofuel, because biofuel has a water dependency, something that we can’t rely on a decade or two from now. http://technology.newscientist.com/article/mg18925401.500

Both Asheesh’s and yours are perfectly laudable expenses (we can debate some on that). However, you have not established how 70,000 crores not spent by Govt in these subsidies is going to result in spending the areas you suggested. These 70,000, if not spent this way, would result in more asinine projects, maybe buy some defence junk or some idiotic irrigation projects. The margins for politicians are massive in any of these spendings – I’m sure they would make 50,000 crores easily.

However, money given as petrol subsidies is not easily stealable by the politicians. I’m all for cutting money supply to the politicians. If we can give away all 300,000 crores as petrol subsidies, we should. When there is no money, the politicians miraculously disappear. This will usher in a new era of a market forces.

All I’m saying is, perhaps this 70,000 crores is a more equitable distribution. Why should the politicians steal all the money? Give some to their servants as well. After all they are called Govt servants!

your very strong arithmetic brings us to the next logical question.
1- Who were the ones opposing oil company privatization in India (that Arun Shourie tried to do) and why?
2- The same day that Atanu published this in the Express; the same paper carried a report that said a political party would do a nation-wide agitation against Petrol price hike (you guessed it – it is Shourie’s party; the BJP)
3- Let’s put Atanu’s figure of 70,000 cr in petro-subsidy in perspective. Forecast (record) tax collection this year is estimated to be 300,000 Cr. We throw away nearly a QUARTER or our earnings subsidising petrol/LPG for the rich. Imagine you are a struggling poor parent in India. What would you do to a son that frittered a quarter of your income on paying for his booze and prostitutes ? (ok. a little extreme – but you know oil is an addiction too).You would kick him out – instead the government of India coddles him.

Imagine if we subsidised bio-fuel research and production to that extent. Would we not be able to find a way to put money into the pocket of the rural farmer instead of the Arab Sheikh?

India’s governance structures are still colonial in the sense that they are exploiting the poor to pay for the luxuries of the rich. Laughably over here the allegedly pro-poor communists are batting for the car owning rich

In US, a gallon (3.78 liter) of gas = $3 at pump, about $0.80/liter, should be about Rs. 32/liter.

Of the cost of gas at pump, 20% is stolen as taxes and Oil cos make huge profits as well.
http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html
http://taxprof.typepad.com/taxprof_blog/2005/10/gas_taxes_excee.html

I’m not sure of petrol rate in India, I’m assuming it is between Rs. 47 – Rs. 50, which is 50% higher than in US.

If Oil companies in US can make huge profits (and pay more than that in taxes) at Rs. 32/liter, I wonder why Oil companies in India are in losses at 50% more.

I have a general question for you Atanu, a lot of what you write is based on a sound economic & common sense, do you think anyone would listen and if not what do we do?