In a long overdue major policy reform for the energy sector, the Indian Government has freed petroleum products from its clutch,
signaling the departure from the standard practice. A move towards
market-determined fuel prices is undeniably a welcome sign that augurs well for the
Indian oil and gas industry. In fact, for the government, deregulation means
lower oil bonds and lesser fiscal deficit. However, all these years, the government
remained wary of its political consequences. Against this backdrop, the
current move is definitely a significant development for a country like
India whose policy makers have long avoided deregulation as touching
government subsidies would turn out to be a political hot potato.
The Wall Street Journal also strongly opined that India
stepping down the deregulation road was a step in the right direction. As per
estimates, the Indian Government incurs as much as $17.5 bn annually on fuel
subsidies. However, most notably, offering fuel subsidies don't necessarily make
gasoline cheap for Indian consumers. Analysts opine that India is not only one
of the world's largest subsidizers of fuels, it is also among the largest
subsidizers of fuels; it is also among the largest
taxers. In fact, under a regulated environment, the government tries to
subsidize prices by putting additional tax burden on all the taxpayers. As
deregulation kicks in, the government can either
reduce the tax burden or use the money efficiently for vital services,
infrastructure development, etc.
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