Subsidising rich

Olga Tellis

A strange thing is happening in our country. Tax-payers are being made to pay more and more for some of the fruits or ills, depends which way you want to look at the market economy.

Liberalisation has resulted in an explosion in the number of rich and wealthy and middle class people who can afford cars. And the government is subsidising diesel and petrol used by these car owners and BPOs among others. Subsidies come from the taxpayer’s money.

The latest in the queue for subsidisation is the aviation industry. While one commiserates with this industry for the rise in aviation turbine fuel (ATF), the Prime Minister has limited options for accommodating the demands of the civil aviation minister. Subsidising aviation fuel, one should think, is out of the question.

Rationalise taxes on ATF

The government needs to rationalise the ATF taxes. States impose sales tax of anywhere between 4 to 30 per cent on ATF. Then there is the differential pricing in the ATF between domestic and international flights. Domestic airlines pay almost 15 per cent more.

Open skies run

Thanks to the open skies policy, everyone and their uncles got into the industry creating more capacity than is necessary. They have been buying planes as if they were going out of fashion, all with money from the banks. Planes proliferated so much that in the night they had to be parked in nearby towns creating more organisational expenses.

Greed and Overestimation

So if companies have a belly landing because of greed, or wrong estimation of the traffic requirements why should the tax payers bail them out? Airlines are losing lakhs of rupees due to aircraft having to fly for as much as upto an hour before landing and takeoff because the airports do not have enough runways to handle incoming and outgoing flights. There is one thing about a market economy — there is no free lunch.

Oil hike conundrum

The oil price hike seems to be one of the most discussed and written about subjects on the net, and one netzien found six million articles on the subject. One can understand why the Congress is dithering over raising the prices of petrol and diesel. It dithered over the week-end because the BJP was having its national meeting and it didn’t want to give the BJP a handle to criticse them.

Any hike in fuel prices will have a direct impact on inflation. In the WPI (wholesale price index) basket, fuel, power and lubricants have a 14 per cent weightage and the manufacturing sector, a 65 per cent.

Any hike will affect a host of industries from fertilisers and chemicals to naphtha, power, plastics and fabrics among others.

In addition coal prices are up 60 per cent since last year and iron ore 65 per cent against crude’s 85 per cent. The government needs to fight the crude price hike on various fronts. We had mentioned the speculation elements that have added more than $30 a barrel to crude prices.

The Indian government should join the US in fighting speculation.