Rs. 50/Liter Subsidy on Petrol – How Will it Work?

Yesterday, the government announced Rs.50/liter subsidy on petrol for motorcyclists, rickshaw drivers, and cars with 800cc engines. As per the government, this new subsidy scheme for a lower-income segment of society would be implemented after six weeks. This is not the first time such a scheme has been announced but has not seen the light of day, but apparently, there is a mechanism under discussion to make it work this time.

As per the economist Ali Khizar, the government is planning to implement it by using data sets from NADRA, phone companies, and vehicle ownership documents. “Bike, rikshaw, and small car beneficiary to be registered having phone and vehicle registered under the same name.

Further explaining, he wrote the users to get this benefit each time through a one-time password (OTP), have this on the machine at petrol pump, and get their quota. For bikers, the monthly maximum limit is 21 liters, the average monthly consumption per PSO data, and the 24-hour cap for bikers will be 3 liters. Moreover, the monthly cap for small cars will be 30 liters.

He believes that this scheme is doable to some extent. However, it raises some questions, i.e., why do car users cross-subsidize bikers? Why do the rich and middle class provide for low-income? Are there any legal hitches?

The economist thinks that this policy would encourage higher bike usage versus cars, leading to less fuel consumption per kilometer which is good. But the subsidy can become insufficient if bike and small car usage exceed 50%.

As per Khizar, the mechanism will be revised every 15 days, and the cross-subsidy amount will be adjusted downwards to balance the books. “This policy is under consideration, and the ministry has asked for six weeks to streamline the modalities,” he concluded.

Proposed Process 

According to an official presentation, the government and petrol pumps will follow the following process to provide subsidy on petrol for masses.

IMF & Subsidy on Petrol

The federal government is still in talks with the International Monetary Fund (IMF) to release the next loan installment. The global lender has set multiple conditions during the negotiations, including imposing Rs. 50 petroleum levy on fuel products. The talks have focused on more taxes to collect revenue; the mini-budget was one of the steps by the government to fulfill IMF requirements. 

However, this new proposed subsidy could dent ongoing talks as IMF stated that the Pakistan government did not consult with them before announcing it. “We are seeking more details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with Islamabad,” IMF’s lender resident Esther Perez Ruis told a local English newspaper. 

As mentioned earlier, the unfunded and untargeted subsidies are frowned upon by IMF, which advocates scaling up the protection for the most vulnerable. 

What is your take on this subsidy on petrol? Would it work? Please share your thoughts in the comments section. 

Exit mobile version