Diesel subsidy: Government set to lose over Rs 100k crore as wasteful consumption grows

MUMBAI: The Government is set to lose over Rs 100k crore on diesel subsidies alone in the current fiscal, as the country's diesel consumption gallops and the fuel stays at substantial discount to its cost. A substantial part of these growing subsidies are getting diverted to areas for which they are not intended. This increases the risk of a bad surprise on the country's fiscal deficit as the year progresses.

India consumed 10.9 per cent more diesel during the Apr-July '12 period compared to year ago, according to the statistics maintained by the Petroleum Planning and Analysis Cell (PPAC). This was substantially higher than the 6.2 per cent growth in overall petroleum consumption during the same period underlining the 'dieselisation' of the economy. Even FY'12 had displayed a similar trend with diesel consumption growing faster than other petroleum products.

There is a clear case of diesel replacing other fuels - petrol, CNG and LPG in case of automobiles and fuel oil in industrial usage. Most of this is unintended and there is no logic for private car owners to enjoy the subsidy benefits.

Although the government tries to keep diesel prices artificially low, there is no mechanism to ensure the benefits go to the desired purposes. "A good portion of the diesel subsidy is used by sectors where it is not intended to be spent. Nearly Rs 8000 crore subsidy is consumed by power generating sets in malls and big buildings, while around Rs 3000 crore of subsidy is spent in powering telecom towers," said Debasish Mishra, Senior Director, Deloitte India.

According to the government the first round of field survey of All India Study on Sectoral Demand of diesel and petrol revealed that nearly 16 per cent of diesel is consumed by passenger vehicles, 4.6 per cent by gensets and 2 per cent by mobile towers. This is wastage of an estimated Rs 23,000 crore of subsidy for full FY13. However, PPAC maintains its study will take one year to finish, when it will be able to put definite numbers to the consumption pattern.