Crude oil costs $135/barrel globally, but Indian prices of petroleum products have long been linked to barely $60/barrel. This has meant under-recoveries — explicit and implicit subsidies to consumers — of a whopping Rs 2,45,000 crore … Yet, political parties have launched agitations in protest. Politicians cynically pretend that high oil prices are the fault of the government, not Opec or global trends …

… Back in 1974, when Opec first sent oil prices skyrocketing, India had no giant consumer subsidies or agitations against oil prices. The price of petrol doubled overnight, inflicting much pain. India was very poor then. Today, it is much richer, and better able to pay the full world price. Yet, that prosperity has also brought the capacity to subsidise on an unprecedented scale …

Ideally, India should pass on the full cost to consumers, as it did in 1974. But for politicians who view high subsidies as electoral necessities, here is a proposal. First, abolish all implicit and explicit subsidies on oil. Use the money saved to cut excise duties on other items of common consumption and provide cash to poor families. Overall inflation and government revenue will be unchanged. Yet, the poor will benefit, and high oil prices will encourage energy-efficiency …

Read the full article here.

Recently we had a hartal in Kerala protesting against the increase in the price of petrol, diesel and cooking gas. As is the culture in Kerala, everyone happily accepted the holiday. But how many of us think of the foolishness of such protests? Are we not aware of what’s happening in the world? It’s easy for opposing parties to protest whenever there’s a price hike. It’s the curse of today’s politics.

Like the author says, it’s a big big mistake to subsidise oil. Today we might enjoy lower prices, but how far can the government subsidise? One day everyone will have to suffer, no doubt. And the other side is that high prices would force the people to consume less energy, and breed a healthy habit of being energy efficient. What’s happening today is that the government is subsidising the destruction of our environment.