11 September 2008

Is the price of petrol subsidised in India?

I am amazed at how well the government has portrayed a generous subsidy for petrol, diesel etc. This is far from the correct position. I did some back of the envelope calculations on the price of petrol and here are my numbers. I started with the price of petrol in the US, as the taxation there is well documented.

Present price of Petrol in the US ($/gallon): 3.668

Taxes in US (per gallon): 0.47

Net price of petrol excluding taxes $/gallon: 3.198

Net price of petrol excl taxes in $/liter: 0.845

Net price of petrol excl taxes in Rs/liter: 38.47

(Note: 1 gallon [US, liquid] = 3.785 liters

1 USD = 45.54 Rupees)

I'm paying Rs. 54/liter in Gujarat - that's net tax of Rs. 15.53/liter or 40% tax on top of the price – I don’t know what combination of taxes are imposed by the center and the state, but am now quite certain of the overall quantum.

Can we all stop pretending that petrol is subsidised? Of course many European countries have an even more obnoxious tax treatment of petroleum products, and for a country which badly needs to correct its fiscal deficit position, this quantum of tax may even be justifiable, inflation be damned. But it's not clear to me why we have this convoluted system of high taxes and then 'subsidies' in the form of oil bonds given to public sector petro companies, bleeding those companies. Makes me wonder how Fitch (a rating agency) thinks that the 'subsidy' is bleeding the Indian government.

1 comment:

AP said...

excellent back of envelope calculation; crazily high taxation in india