Fuel Subsidy - Quo Vadis?

Recently there is a big discussion on the internet about the plan from the government to reduce the consumption of subsidized fuel (especially gasoline). There are some proposals to reduce the consumptions: ban the motor bikes from buying subsidized gasoline; limit the purchase per motorized vehicle per man per day; smart card to limit the purchase; and ban the cars from consuming the subsidized fuel. There is a big discussion about the proposed strategies especially the one that plans to ban motor bikes from buying subsidized fuel.

the motorists are against that particular strategy and their opinion is backed up by motor cycle industry. Their arguments mainly are: motor bike consumption is far less that car, therefore it is the car that should be banned from using subsidized fuel; motor bike users are mainly of lower income therefore using non subsidized fuel would certainly eat bigger part of their income. Final decision is not yet taken since any decision will certainly effect the national economy.

Banning the cars from using subsidized fuel might create sudden increase of inflation. Prices might be rapidly increasing and put more pressure to the people. This is because currently transportation is still subsidized. Trucks and buses are consuming subsidized diesel fuel while inner city public transport are also using subsidized gasoline or diesel fuel. In general, putting the strategy into operation would create high pressure especially for poor people. Banning certain cars (private ones) might be possible, but there will be ways to by pass this kind of strategy.

Limiting the purchase of subsidized fuel for private motor bikes or cars needs strong hand and eyes. this strategy needs a smart system that can not be broken unless there is legal consequence. This means this system needs strong enforcement. Smart system can be bought easily but enforcement is a thing that I have a doubt since the government has long track record of bad enforcement (law or regulations). Smart card is part of this strategy. The implementation of this technology will surely be very expensive.

All possible strategies have their own strengths and weaknesses. What government needs is a study that shows effects of fuel subsidy to other sectors and to macro economy and also shows the real beneficiaries of the subsidy. Knowing the study result, government should know which strategy gives the least negative impact on macro economy and the economy of most of people and also bring improvement on government budget. The most important thing is that the government has to be very consistent with the policy and not letting politics to influence it.