Removing fuel subsidy: Easier said than done

If fuel subsidies are meant to help the poor, then they are very poorly targeted. International Energy Agency estimates that of the $22.5 billion spent by India on fossil fuel subsidies in 2010, less than $2 billion helped the poorest 20 per cent of the population. But even if poor households get only a small portion of direct subsidies, the effects of subsidy removal on their incomes is far higher than for richer households. This is partly because raising diesel prices has a significant impact on inflation and cascading effects throughout the economy, via sectors such as transport and agriculture. Forget the coalition allies of the UPA, will the Congress party headed by Mrs. Sonia Gandhi ever agree to such an ‘anti-poor’ step?