ADB asks India to lift oil sops

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Manila, April 6: State subsidies on oil products are doing great harm in India, indonesia, Malaysia and Thailand, the Asian Development Bank (ADB) said on Wednesday. ADB urged its four member-countries to scale back subsidies and align prices with the market.

"Current market conditions should be taken as a reason to push through with reform, as the fiscal costs rise and the escalation in the oil price may be more than just transitory," it said in its annual publication Asian Development Outlook.

The report acknowledged that "public resistance to removing subsidies can be very strong, particularly during times of volatile oil prices." It also took note of the fact that these countries have taken steps to reduce subsidies as the fiscal strain began to show.

India and Thailand resort to “off-budget” subsidies to specific products like diesel, kerosene and liquefied petroleum gas (LPG) but this "may incur fiscal liabilities in principle," it said.

The scheme "would ultimately create a fiscal liability once the state-owned oil-marketing companies no longer prove viable."

"Government intervention for redistributional and environmental reasons is justifiable only when the social gain or the environmental improvement exceeds the economic cost," the report said.

"The existing practices in these four countries appear ineffective since the subsidies are poorly targeted and often distort resource allocation."