Petrol subsidy - revisited

I was surprised to see a piece by Mr. Swaminathan S.A. Aiyar, noted columnist, in today’s Times of India advocating that fuel prices should not be reduced. The piece is once again written on an assumption that the government has been subsidising fuel prices over the past year - which as I wrote on my blog on 11^th Sept 08 is a myth.

My personal take as a green enthusiast is to keep the petrol prices high and also in these trying times there is no real choice but to keep prices high – so I do support high prices, but at the same time let us not be delusional about calling this a subsidy.

Since petrol prices have reduced dramatically since my last post on the subject, here are the revised estimates of the ‘subsidy’ being handed out.

Present price of Petrol in the US ($/gallon): 2.8

Taxes in US (per gallon Federal+State): 0.31

Net price of petrol excluding taxes $/gallon: 2.49

Net price of petrol excl taxes in $/litre: 0.658

Net price of petrol excl taxes in Rs/litre: Rs. 32.2

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

1 USD = 49 Rupees)

I'm paying Rs. 54/liter in Gujarat - that's net tax of Rs. 21.8 per litre (up from 15.53/litre on 11 Sept) or 67.5% (up from 40% on 11 Sept) tax on top of the price – I don’t know what combination of taxes are imposed by the center and the state, but clearly there is no subsidy to the consumers. At 8 cents a litre (Rs. 3.92 per litre), petrol is subsidized in Venezuela.