Car owners may not get subsidised diesel: Govt

JD-U leader and NDA convenor Sharad Yadav had questioned the government's policy of providing subsidised diesel for consumption by luxury car owners, telecom tower companies, malls and restaurants

New Delhi: With passenger cars consuming about 15% of the diesel, the government today indicated that it might do away with the subsidy enjoyed by such vehicle owners, reports PTI.

"...we can accept your (Opposition) suggestion and try to work out what mechanism could be found out so that this section (diesel car owners) are not subsidised," finance minister Pranab Mukherjee said replying to a debate on price rise in the Lok Sabha.

The government gives a subsidy of Rs6.08 per litre on diesel.

While the prices of petrol are linked to market rates, the government directly and indirectly compensates the oil marketing companies for losses on account of sale of diesel, kerosene and LPG through subsidies and oil bonds.

Under pressure to keep its finances under control the government has already indicated that it was keen on freeing prices of diesel and cooking gas (LPG) but retaining subsidy on kerosene which was used by poor.

In June, while increasing prices of kerosene, diesel and LPG, the government had slashed customs and excise duties on petroleum products to mitigate the impact of price hike on common man. It took a revenue hit of Rs49,000 core per annum.

India imports about 75% of its total crude oil requirement.

Mr Mukherjee said out of total consumption of diesel, 10% is used by industry, 6% by railways, 12% by the agriculture sector and 15% by car owners.

As much as 8% is used for power generation, he said, adding buses and trucks consume 12% and 37% respectively.

Mr Mukherjee said that despite price increase of petroleum products in the recent past, the under-recoveries of state owned oil companies was still around Rs1.22 lakh crore.

JD-U leader and NDA convenor Sharad Yadav had questioned the government's policy of providing subsidised diesel for consumption by luxury car owners, telecom tower companies, malls and restaurants.

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COMMENTS

Rajiv Chawla

6 years ago

Even though it'll enlarge the hole in my pocket too, I agree that diesel subsidy is surely not meant for high-end cars & SUVs. However, govt should NOT introduce differential pricing system, as it would give additional tool to be misused by many Fuel Station owners and add to corruption and siphoning, as we see in our PDS. The price of diesel should be the same for all.
However, the diesel subsidy can be easily offset by higher Excise Duty on the segment from which govt. wants to withdraw diesel subsidy. Say, an additional Excise Duty of 4% on a diesel car worth Rs. 10 lacs gives Rs.40,000/- upfront extra to the exchequer. This should more than offset the diesel subsidy used by the owner in the lifespan on the vehicle.

Satyam case: Bail pleas of Raju, seven others rejected

As the trial in the Satyam scam was not completed before the stipulated time of 31st July, Mr Raju and other accused had on Monday moved the court of XXI Additional Chief Metropolitan Magistrate (ACMM) seeking bail

Hyderabad: A local court today rejected the bail pleas of prime accused in the multi-crore accounting 'fraud' in Satyam Computers including former company chairman B Ramalinga Raju and seven others, reports PTI.

As the trial in the Satyam scam was not completed before the stipulated time of 31st July, Mr Raju and other accused had on Monday moved the court of XXI Additional Chief Metropolitan Magistrate (ACMM) seeking bail.

Besides Mr Raju, Satyam's former MD B Rama Raju, ex CFO Vadlamani Srinivas, former employees G Ramakrishna, D Venkatpathi Raju, Ch Srisailam, former PWC auditor Subramani Gopalakrishnan and Satyam's then internal chief auditor V S Prabhakar Gupta are currently lodged in the Chanchalguda Central prison here.

The accused had sought bail on the grounds that the trial in the Satyam scam was not completed before the stipulated time of 31st July and all the prosecution witnesses were examined.

Earlier, cancelling Mr Raju's bail in October last year, the Supreme Court observed the accused may file bail application only after 31 July 2011 if the trial in the case is not completed in the local court.

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Crucial to have the right members on the Microfinance Development Council

The proposed Council to advise the government on the microfinance business should have proper representation from among all the stakeholders who will be alert to the task, while those who have specific business interests should be avoided

The draft Microfinance Bill talks about a Microfinance Development Council "to advise the Central Government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the microfinance sector and microfinance institutions, to promote financial inclusion."i

The draft bill suggests that "the Council shall consist of the following members, nominated by the Central Government, namely: (a) a person of eminence, with experience in banking, rural credit and microfinance, as Chairperson; (b) two officers, not below the rank of Joint Secretary to the Government of India, one each from  the Ministry of Finance  and the Ministry of Rural Development, as Members; (c) an officer, not below the rank of an Executive Director of the Reserve Bank, as Member; (d) an officer, not below the rank of an Executive Director of the Small Industries Development Bank of India established under the Small Industries Development Bank of India Act, 1989, as Member; (e) an officer, not below the rank of an Executive Director of the National Bank dealing with microfinance, as Member; (f) an officer, not below the rank of an Executive Director of the National Housing Bank established under the National Housing Bank Act, 1987, as Member; and (g) not more than six persons, of whom at least two shall be women, to be nominated in consultation with the Reserve Bank from amongst persons with experience in banking, rural credit and microfinance or the representatives of microfinance institutions or scheduled banks or any other institution providing microfinance services, as Members."ii    

I have serious reservations about the composition of the council and hope that it does not become one more body to push more and more consumption loans to poor and low-income people and get them indebted and then, hail the cause of financial inclusion. Somehow, we seem to think that merely putting more money in the hands of poor people will enable them to get out of poverty, and that surely has not been the case, as the experience of the last 60 years has shown.

Take the case of lenders like SIDBI (Small Industries Development Bank of India), or commercial banks who have been offered representation in the Council. I have no issues with that, but I do hope that the Reserve Bank of India (RBI) and the Union Ministry of Finance (MoF) did closely look at the role that these lenders played in the recent microfinance crisis. For the benefit of the MoF and the RBI, I provide some relevant data here.



That domestic financial institutions (DFIs) like SIDBI played a major role in the burgeoning growth of the Indian microfinance industry is evident from this data. Without doubt, in my analysis, the single largest financier of microfinance institutions (MFIs) was/is SIDBI. A close look at the data suggests that SIDBI had abandoned its slow growth trajectory somewhere in 2007 and, in fact, began to turbo-charge the growth of the Indian microfinance industry from April 2008 onwards. Incidentally, this coincides with the fastest growth period (April 2008-March 2010) of MFIs in the history of Indian microfinance.

Given that DFIs like SIDBIv  were aggressive in their lending to MFIs, what is the guarantee that they will not push loans to MFIs again, and thereby facilitate these MFIs to over-lend to low-income people once more? Hence, we need credible safeguards in this regard, and especially in the light of some other happenings. For example, there was a SIDBI nominee on the board of a very large NBFC MFI that lent Rs1.636 crore to its own founder and managing director to enable him to buy shares (at face value) in the company. There are other instances at specific MFIs wherein nominee directors have remained mute spectators to many such not-so-good governance practices.

While I am not sure of the exact reasons, the nominee directors may not have protested, as they perhaps did not want to disrupt the (sound) MFI-SIDBI lending relationship. And, indeed, I have heard some people talk in private that SIDBI has been keen to enhance its microfinance loan portfolio first. While in my opinion, this may not be an entirely true and fair assertion, if that is going to be the case, then I see no real point in giving them a representation in the Microfinance Development Council.

Therefore, I would be very careful in putting banks/DFIs and MFIs (more so than lenders) in the Council. However, if they are indeed to be provided representation in the council, then, credible assurances (that they will not engage in similar (irresponsible) consumption based (over) lending as was witnessed between April 2008 and March 2010 in Andhra Pradesh and the rest of India) must be taken from their highest-ranking officials (chairman or managing director). That said, I still feel that it would be in the best interest of all stakeholders to have representatives of lenders and MFIs through their associations (on the Microfinance Development Council), as then all lenders/MFIs would be equally represented and no single institution will have an undue advantage.

Further, I strongly believe that if we are serious about using microfinance to support livelihoods and enterprises so as to foster inclusive growth, then, we must get the cooperation of the ministries of micro, small and medium enterprises, agriculture, rural development and urban poverty alleviation, as well as institutions like the Small Industries Development Corporation (SIDC) and state governments (on a rotational basis) on the Council.

To summarise, in my humble opinion, we need to ensure that there are safeguards in the Microfinance Development Council and, ideally, it would be best to have gender balanced representation from among (a) real microfinance clients, (b) associations of bankers and MFIs, (c) various Government of India ministries (finance, MSME, agriculture, rural development and urban poverty alleviation), (d) representatives of different state governments (on rotational basis), (e) civil society representatives, and (f) regulators/supervisors (the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, NABARD and National Housing Bank). And without any doubt, stakeholders who have a specific interest of lending, or equity investment, or technical support, or any other such relationship to the microfinance industry are best avoided, so as to ensure that real conflicts of interest do not exist in this all-important Council for microfinance in India.


  iSource: The Micro Finance Institutions (Development and Regulation) Bill, 2011, (as of 20 June 2011).
  iiSource: The Micro Finance Institutions (Development and Regulation) Bill, 2011, (as of 20 June 2011).
  iiiCompiled from Status of Micro Finance in India - 2009-10, by NABARD.
  ivCompiled from Status of Micro Finance in India - 2009-10, by NABARD.
  vDFIs like SIDBI have done great work, but that does not detract from the fact that they were also, in some measure, responsible for the 2010 microfinance crisis. Again, the objective is not to find fault with them, but rather facilitate development of safeguards so that such over-lending does not happen again.

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments.)

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