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Reform of the Fiscal and Subsidy Regime for the Petroleum Sector

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  • Sebastian Morris
  • Samir Barua
  • Jayanth Varma

Abstract

Reform of the oil sector is long overdue. The problems in the sector emanate from the structure of central taxes and the system of subsidisation through prices. Solutions to the problems necessarily have to address both tax and subsidy simultaneously. The social losses include, misuse / wasteful use of scarce petroleum resources, diversion, adulteration, other avoidable negative externalities, improper substitution between products, tax arbitrage, distortion of consumer preferences and input choices of industries, and international cross hauling of petroleum. Nearly all these costs, and problems arise not because of subsidisation per se but due to the use of varying retail prices that are used to subsidise. Prices for the same product vary for different consumers besides. They also vary across products. These tax /subsidy variations are the root cause of nearly all problems in the sector. Autonomous price variations (i.e. those resulting from the actions of firms (under a regime of non- distortionary subsidies) would be small and not subject to ‘arbitrage’ i.e. to the realisation of rents through diversion and adulteration. [Working Paper No. 2010-03-03]

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  • Sebastian Morris & Samir Barua & Jayanth Varma, 2010. "Reform of the Fiscal and Subsidy Regime for the Petroleum Sector," Working Papers id:2642, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2642
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Morris, Sebastian, 2001. "Issues in Infrastructure Development Today: The Interlinkages," MPRA Paper 24427, University Library of Munich, Germany.
    2. Gilbert, Christopher L., 1996. "International Commodity Agreements: An obituary notice," World Development, Elsevier, vol. 24(1), pages 1-19, January.
    3. Joshi, Vijay & Little, I. M. D, 1996. "India's Economic Reforms, 1991-2001," OUP Catalogue, Oxford University Press, number 9780198290780.
    4. Pandey, Ajay & Morris, Sebastian, 2006. "Efficient Subsidisation of LPG: A Study of Possible Options," IIMA Working Papers WP2006-04-07, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. Morris, Sebastian & Pandey, Ajay & Barua, Samir K., 2006. "A Scheme for Efficient Subsidisation of Kerosene in India," IIMA Working Papers WP2006-07-06, Indian Institute of Management Ahmedabad, Research and Publication Department.
    6. Morris, Sebastian, 1997. "Why Not Push for 9% Growth?," IIMA Working Papers WP1997-04-01_01440, Indian Institute of Management Ahmedabad, Research and Publication Department.
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    Keywords

    Reform; oil sector; subsidisation; subsidy; externalities; arbitrage’;
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