Diesel and LPG prices to go up again, govt to cut subsidy

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Diesel and LPG
NEW DELHI: Increase in prices of diesel and LPG (cooking and auto gas) is expected soon and enough hints were given in the Economic Survey 2012-13 presented today in parliament.

Pitching for hike in prices of diesel and LPG to cut subsidy burden, the survey says "addressing the key fiscal risk of petroleum subsidies is critical in better fiscal marksmanship."

The government has pegged the oil subsidy at Rs 43,580 crore. "With recent reforms in diesel prices and efforts at expenditure reprioritisation, the medium-term fiscal consolidation plan is credible and could yet again yield macroeconomic dividends in terms of higher growth and price stability," said the survey.

To check the increasing subsidy burden, the government had raised diesel prices by Rs 5 per litre and capped the number of subsidised cylinders at six per household in a year in September, 2012.

In January, 2013, the government also allowed oil marketing companies to raise diesel prices in small measures periodically. However, in order to protect household budgets, it simultaneously raised the annual LPG cap from six to nine cylinders.
The survey also says that "the reach of subsidies on LPG is highly unequal amongst the poor and rich in rural and urban areas."

"While there is a significant inequality in the proportion of subsidies received by the poorest and richest households in rural areas, the distribution is more equitable across urban households. However, in both cases, the proportion of subsidies that go to the poor is low," it adds.

To calculate the distribution of subsidies across households, the survey uses the 64th Round of NSS data and categorize all rural (and urban) households into quintiles based on their per capita household expenditure.

"The proportion of subsidies that go to the poorest quintile is only 0.07 per cent as compared to 52.6 per cent for the richest quintile. In urban areas, though the proportion of subsidies that go to the poor is still low (around 8.2 per cent), there is a more equitable distribution across the remaining quintiles (19 per cent, 24 per cent, 25 per cent and 23 per cent respectively)," the survey says.

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