Fuel Subsidies are Anti-Inflationary...

Article;

Reduce Subsidies Raise Capital Expenditure for Economic Revival


Comment;

Fiscal deficits are inflationary because government spending is increased but subsidies on essential products like fuel are there to contain price rise and inflationary effects since transport cost is a major determinant of prices of goods in an economy. A paper by Paul Krugman Increasing Returns and Economic Geography for which he has been awarded Nobel-Prize too says that transport costs play a major role in the overall price structure of an economy. Therefore from the point of view of inflation subsides are good because they keep expenditure on transport divided between government, and, the economy (consumers and producers). If the government had not shared the prices of fuels then the whole price for fuel must be paid by the economy, consumers and producers, both. To sum-up, subsidies are anti- inflationary, but, they increase government expenditure and sometimes revenues are short but the impact of rise in fuel prices is felt by all. The government either has to prop-up production of fuel, which in the short-run not possible or it can help reducing the pressure on their prices paid by the economy. In the long run we will pay the fuel bill if we are not dead…