Gov earns much more than it loses from petroleum subsidies

India’s finance minister Pranab Mukherjee may like to complain about how selling diesel and LPG ‘below cost’ is bankrupting the government, but the numbers tell a different story.

According to data submitted by the government in the Parliament today, the state and central governments earn much more from the sale of diesel, petrol, LPG and Kerosene than they lose in the form of subsidy.

For example, in the last year, the government paid about Rs 65,000 crore as subsidy to oil marketing companies such as Indian Oil and Bharat Petroleum, to compensate for ‘under recoveries’ caused by government-controlled prices of petroleum products.

However, replying to a question in the Parliament today, the oil ministry said that the central government alone earned Rs 1.36 lakh crore — more than twice what it paid out as subsidies — last year.

If you include state and local governments, the total earnings from the sale of petroleum products was more than Rs 2.25 lakh crore — 3.5 times the subsidy amount.

In other words, while the government claims that it is going broke as consumers purchase more and more petrol and diesel, it is making much more from their sale in the form of taxes than it pays as subsidies.

Not surprisingly, more than half of the price of petrol in most places in India is comprised of taxes. Central excise duty on petrol and diesel alone is nearly Rs 15 per litre.

Bothered by consumer opposition to raising petrol prices further, the oil companies had recently asked the government to cut down taxes or pay cash compensation.