Does India really subsidize petrol, diesel andcooking gas?

Our national debate has singularly focused on raising pricesin what is already one of the costliest for gasoline, ostensibly because allpetroleum products are subsidized by a state that can ill afford to do so.This, in turn, has led the opposition — and some allies like theTrinamool Congress — to resist any increase in administered prices,ostensibly to protect the poor. So, what we have is a perpetual debate withlittle or no nuances, and no freedom from high energy prices, hurting a varietyof businesses.

Goa Chief Minister Manohar Parrikar, an IIT alumnus, hasturned this debate on its head. Last week, he sharply cut some the value addedtax his state government imposes on petrol and diesel. The result: petrol pricein the state will be down a whopping 16 percent, effective April 2.

“I want to expose the central government on the petrolprices. It’s an artificial hike created by the central government. Thecenter is simply looting the people,” Parrikar told Firstpost.com, a newswebsite, in a telephonic interview.

Parrikar is right. Actually, there is even more room to cutprices because taxes account for nearly 50 percent of the cost of petrol, forexample. According to a report in The Economic Times, if state governmentsfollow Goa's example, the fuel will become cheaper by roughly Rs. 15 a liter inthe four metros — Delhi, Mumbai, Chennai and Kolkata —  andhigher in some states like Andhra Pradesh that tax petrol at a higher rate.

So, should other states follow suit? Would economic benefitsgained by lower energy prices offset revenue losses? Could it inflateconsumption, and lead to galloping oil imports? Will the real price cuts favorthe rich at the expense of the poor, as some argue?

It is not clear anybody has answers to any or all of theabove questions. No chief minister has responded to Parrikar’s boldinitiative. Not other BJP-ruled states. Not West Bengal, ruled by the pro-poorMamata Banerjee. Or, perhaps, West Bengal, more than other states, is loath tofollow suit because of its precarious finances.

The experiment in Goa is going to be interesting. It is ablessing of sorts that such a trial is taking place in a small state that hasonly about a million automobiles, 70 percent of which are two-wheelers. It isbelieved that the revenue the state foregoes might be small. But as aproportion of the state’s revenues, it may be no different from otherstates.

Parrikar believes the impact of lower petrol prices to berevenue-neutral to his state. This is because he expects the lower price tolower inflation and boost tourism, making up for the tax loss.

Still, the revenue question is a big one for states and whathappens in Goa would be crucial to adoption by other states. But an even biggerquestion might be: How will consumers respond? The last thing most of ourovercrowded cities need is an automobile boom, giving short shrift to publictransportation.