Subsidy by its nature and design should be availed only by the needy, other attempts to put subsidies to use usually misfire as seen in the case of Oil India and ONGC. The Centre  has decided to exempt Oil India and ONGC from fuel subsidy payments that were due in  Q3. Oil companies argue that their revenues have fallen due to global slump in oil prices. From October to December 2015, oil corporations lost over Rs.6000 crore by selling kerosene and LPG at rates fixed by the Centre; to fill the revenue gap/loss, the Government of India has decided to pay the remaining bill. It is argued that subsidies are indirectly a benign provision for the citizens; thus by keeping the market price low on kerosene and LPG, the Government is serving the fuel needs of Indian citizens. If that is so, why not try a direct transfer to the accounts of the needy and let them decide whether they want to pay the market price for their fuel needs or exercise voluntary non-participation from the fuel market.

Selling products below their market price eventually makes the situation worse both for sellers and buyers. Rather than giving subsidies to large oil corporations, which in a free market ought to compete to protect their interests, they are made to bear the brunt of government setting prices and then incurring its wrath when they perform below par.

Oil corporations should diligently better their performance and create a market position for themselves where profit is not an anathema. In advanced economies oil companies are the most promising and profitable enterprises; in India they under-perform and fail to live up to the expectations of a thriving free enterprise.

The Government ought to remember that it is taxpayers’ money they have at their disposal and which is being used to pay the oil corporations’ dues. This money would be well spent if utilized for giving direct essential services to citizens living below the poverty line and in utmost need of sustenance in cities and villages. If employment generation is low, as it is in this fiscal year and with lower GDP growth than the last quarter,  the model of  growth irreversibly affects the most vulnerable sections of the population.

As an intervention in the market, subsidies are intrinsically damaging to the equilibrium as they disturb the supply and demand that sets the price. If the Centre wants to tamper with the market, it should only be for the assured benefit of the needy.