Subsidised oil is bleeding us: Rs 21 cr losses every hour!

By R Jagannathan

Thanks to a tanking rupee, the oil marketing companies (OMCs) are now losing more than Rs 500 crore a day on subsidised diesel, kerosene and cooking gas. Or Rs 509 crore daily, to be precise.

That’s Rs 21.2 crore of losses every hour!

The losses on diesel alone were Rs 81,192 crore in 2011-12. That’s more than the entire food subsidy bill for 2012-13 (Rs 75,000 crore). Put another way, if the diesel subsidy is ended, the Food Security Bill needs no extra money. It comes for free.

[caption id=“attachment_311429” align=“alignleft” width=“380” caption=“If oil prices were freed, we could feed the poor without ruining the economy. Reuters”]  [/caption]

In other words, if oil prices were freed, we could feed the poor without ruining the economy.

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The losses on kerosene amounted to another Rs 27,352 crore in 2011-12. Plus, Rs 29,997 crore on cooking gas. Together, subsidies costs the OMCs Rs 1,38,541 crore.

That’s nearly four-and-a-half times the money Pranab Mukherjee will raise from public sector disinvestment this year.

But if he didn’t have to subsidise the OMCs, he could have brought down the fiscal deficit by an equal amount and his fiscal deficit would be just around 3.75 percent, not 5.1 percent. The markets would be salivating at this turnaround, and foreign money would be flooding in.

The rupee, instead of tanking, would be holding its own due to good foreign exchange flows.

Memo to Pranab: just one bit of reform, oil deregulation, can rescue the whole economy. It will work even if you do it in stages - over 18 months. You don’t have to stake your government for it.