Fuel Subsidies

There are various arguments put forward against continuation of subsidies on fossil fuels in India. Critically examine the pros and cons of such subsidies and suggest if these subsidies should be continued or not. (200 Words)

Recent trends in climate change and global warming has necessitated policy makers and think tanks to revisit the question of subsidies given to the fossil fuels.
Advantages of subsidy cuts:
  1. Cutting fossil fuel subsidies and diverting them towards clean energy would definitely cut harmful emissions making the air cleaner. This means less pollution, lesser health problems and savings in public health expenditure.
  2. Deregulating fossil fuel prices would create a level playing field for alternative sources of energy, which because of heavy subsidies by government look costly and suppress their use.
  3. Withdrawal of subsidies would make fossil fuel costly and its natural offshoot would be conservation of fossil fuels.
  4. Would help government to normalize its twin deficit situation, promoting overall efficiency and competitiveness.
  5. The money can be diverted can be better spent on health, education, rural development etc.
  6. Would decrease India’s dependence on foreign supplies of such fossil fuel.
Disadvantages of subsidy cuts:
  1. We are yet in a nascent stage of developing eco-friendly fuels and even phased withdrawal holds the potential of slowing down economic growth.
  2. The role played by fossil fuels in deriving national economy makes them a worthy candidate to receive subsidies; and once economic growth happens, issues like health, education rural development could be easily dealt with.
  3. Subsidies ensure the Economic reach of Food items Due to subsidised Diesel. Hence no subsidy can mean more hunger.
  4. Pollution, health problems, fiscal deficit, reduced development expenditure if subsidies are not cut.
India though is #4 in Emission but there is huge Gap when compared with above 3 that is china , Us and EU . Also per capita consumption is 15 times lower then American. There is no denial that Inefficient utilisation cause more harm than good. A better approach will be “CBDR” , Green climate fund contribution by developed economies, Sharing Historical burden , technology transfer for Effective Utilisation.
If such steps not taken, then it may be difficult to Phase out Fossil fuel. A phased cuts in subsidies on fossils along with assistance from developed world can together serve the purpose. Biofuel, biodiesel, ethanol blending, LNG can act as bridging the gap for short term to make the transition as smooth as possible.
Recent developments:
  1. Shift from carbon subsidy to carbon tax regime.
  2. Increased coal cess to 100rs/tonne to discourage fossil fuel.
  3. BRT, cycle tracks, ban on certain construction works, 10yr old diesel vehicles etc.
  4. Deregulation of fuel price to make the consumers exposed to external shocks in oil supply.



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