ATF Subsidy: The Argument Refined

New Delhi: June 7, 2008: 0600hrs
Actually, the subsidy on diesel, meant to keep transport costs low, is totally pointless, given that our road conditions waste much more fuel than the subsidy can save. The encouragement given to diesel engined cars is perverse. Petrol and diesel can be equally priced, and this should be the norm. If roads are built properly, much will be saved on diesel costs, even without a subsidy.

The subsidy on cooking gas is another “false” idea, for the monopolist supplying it has chosen the most inefficient mode of transporting the gas to customers. If gas is privatized, competing firms will pipe it to homes, bringing down costs.

The subsidy on kerosene as fuel for the poor is also meaningless, given that electricity for cooking is unreliable. If the electricity industry is streamlined, the poor could easily afford power for cooking.

Thus, a subsidy on Aviation Turbine Fuel (ATF) is a great idea – if all these other subsidies are done away with. Civil aviation will boom in India – and Indian carriers will out-compete foreign rivals. Tourism will boom too – as the costs of traveling around this vast country are reduced. And the poor will fly!

Win-Win all around.

So let the US and Europe subsidize farmers, or give them incentives to grow corn for fuel.

In India let us subsidize flying.

People’s jets powered by people’s jet fuel.