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Energy subsidies wiping out over Rs 2 lakh crore of India's GDP, unsustainable: Experts

New Delhi , Tue, 13 Dec 2011 ANI

New Delhi, Dec.13 (ANI): Experts have unanimously cautioned the government that the current levels of subsidy in the energy sector, which wipes out more than Rs 2,00,000 crores of India's GDP, is not at all sustainable and it would very soon throw the public finances into a big mess.


Participating in the 10th Petro India conference, organised jointly by Observer Research Foundation and the India Energy Forum, experts said the loss of over two percent of India's GDP to energy subsidies was not only undermining India's fiscal sustainability but also reducing energy security through investment shortfalls.


S.C. Tripathi, former Secretary in the Petroleum and Natural Gas Ministry, likened the situation to the pre-liberalisation period when the political leadership was finally compelled to take the hard decision of economic reforms.


"The political leadership will not be able to sustain this level of subsidy for long. They will be forced to initiate reforms in the energy sector as in the 90s," Tripathi, who worked in the Ministry of Finance in the 90s, said summing up the discussions.


R P N Singh, Minister of State for Petroleum and Natural Gas, agreed that some forms of energy subsides are underserved and invited urban households to voluntarily give up subsidised LPG cylinders.


G C Chaturvedi, Secretary, Ministry of Petroleum and Natural Gas, said that pooled price for natural gas, a form of cross subsidisation would remove the incentive for the importer to source gas at the lowest price.


S C Tripathi said Governments need to diversify their sources of revenue away from petroleum so that tax on petroleum products can be rationalized.


Sunjoy Joshi, Director ORF observed that the dramatic reduction in natural gas prices in the North American markets was the consequence of not having price controls and subsidies.


Professor Sabastain Morris from IIM (Ahmedabad) argued in favour of complete deregulation of the oil sector and said that central government revenue could be protected through a revenue neutral value added tax of 110-120 percent.


Elango, Director Strategy with Essar said that the disparity in pricing oil and natural gas impacted upstream investment. Sanjay Sah of KPMG pointed out that oil rserves in Columbia increased by 23 percent in just 7 years because of radical reforms in the sector.


Dr Urjit Patel, senior economist associated with the Brookings Institute, pointed out that India has no dilemma in energy pricing but only hard budgetary constraints.


Dr B Mohanty, Director, MOPNG, explained that China moved from being the second largest energy subsidizer to being the tenth largest through regular price revision by companies based on the 'price band mechanism' and targeted subsidy delivery.


Deepak Mahurkar of PricewaterhouseCoopers recommended that the constitutional amendment to exclude fuels from GST must be avoided and that price control must precede roll out of CST for most efficient outcomes. Mr Rakesh Jain of Feedback Ventures said that while a case can be made for subsidies in transitional economies like India, they must be transparently budgeted, targeted and rational and have defined time frame with explicit sunset clause.


Ashok Dhar, President, RIL, recommended that the market for diesel may be segmented based on appropriate product specifications to minimize subsidy leakages and maximize targeting.


Nitin Zamre, MD, ICF International said that subsidies are a lose-lose game and that subsidies should be relevant to the consumer and not the product. Mr M K Venu and Mr T K Arun noted journalists from the financial media, commented that politicians can actually gain from reforms and deregulation of the energy sector.


Overall there was no disagreement that petroleum and electricity subsidies wipe out over one percent of GDP each representing a loss of over Rs 2,00,000 crores which undermine energy security, compromise on economic and ecological efficiency and yet deliver none of the social benefits they are intended to bring. (ANI)


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