FinMin says DBT in kerosene will help better targeting of subsidy

Move seeks to eliminate pilferage and black-marketing and cut down adulteration of the fuel with diesel, while retaining subsidy to the poor

The Centre’s latest move to introduce direct benefit transfer (DBT) in kerosene would help better targeting the subsidy to the consumers who really need it, economic affairs secretary at the finance ministry Shaktikanta Das has said.

The government on Friday announced it would launch DBT scheme for distribution of kerosene subsidy in 26 districts across eight states. This means kerosene consumers, largely representing the poor population in rural areas, will have to pay the market price of Rs 43 a litre from April 1, followed by the government transferring the subsidy amount (Rs 31 per litre) into their bank accounts.

“Congratulations to the petroleum ministry for announcing DBT in kerosene. Subsidy should be targeted and reach those who actually deserve. DBT in kerosene: Reforms continue,” Das said in a tweet.

The move is aimed at eliminating subsidizsed kerosene from the supply chain — for better targeting of beneficiaries, eliminating pilferage and black-marketing and stopping adulteration of the cheap fuel with diesel — while retaining the provision of subsidy to the needy. The previous UPA government had tried to implement the same scheme beginning with a pilot in 2011. However, the scheme failed to take off.

Subsidised kerosene, which constitutes the bulk of the total kerosene consumed, is provided through the public distribution system (PDS), a network of fair price shops (FPS) administered at the state level. For every state, PDS kerosene allocations are released on a quarterly basis with the states’ Department of Food and Civil Supplies ensuring distribution to retail outlets. The centre has allocated 86.85 lakh kilolitres of subsidized PDS kerosene to states in the current financial year even as total annual consumption stands at 71.3 lakh kilolitres.

In 2014-15, oil marketing companies (OMCs) lost Rs 24,000 crore on subsidized kerosene sales, around a third of their total under-recoveries of Rs 72,000 crore. The centre’s total petroleum subsidy burden stood at Rs 60,000 crore last financial year and is budgeted to come down to Rs 30,000 crore in the current financial year. Kerosene would account for Rs 8,000 crore of this.

The retail price for PDS kerosene has increased only twice since March 2002. However, thanks to the crude price slump last fiscal (2014-15), total per litre subsidy on PDS kerosene came down to Rs 27.93 from Rs 34.80 in the previous financial year.

PDS kerosene is diverted to the parallel market primarily as a diesel adulterant. A recent analysis of PDS allocations and household survey data from the National Sample Survey Organisation (NSSO)’s 68th Round estimates total PDS kerosene leakage to parallel markets in 2011-12 at approximately 45 per cent of total allocation.

As per Economic Survey 2014-15, estimated leakage of PDS kerosene is 41 per cent of the total allocation made to States for the year 2013-14.

A task force on Direct Transfer of Subsidies on Kerosene, LPG and Fertiliser, set up by the previous UPA government, had in 2011 recommended Aadhaar-enabled cash transfer scheme. It had recommended moving kerosene at the market rate through the supply chain from the OMCs depot to wholesale dealers to FPSs and finally to consumers. It had proposed linking of the actual purchase with the corresponding calculation of subsidy entitlement based on each transaction. This, however, requires fundamental reforms in the PDS at the state level.

The government asserts its latest plan follows detailed discussions with states on the DBT proposal. Oil minister Dharmendra Pradhan had last week told Business Standard eight states had expressed willingness to move towards the cash transfer scheme for kerosene subsidy and had even digitised their database of beneficiaries. However, lack of clarity prevails on the preparedness of state authorities who will monitor the implementation in the 26 selected districts.

The districts include Raipur, Durg and Bilaspur in Chhattisgarh, Panipat and Panchkula in Haryana, Shimla, Solan and Una in Himachal Pradesh, Chhatra, Giridih, East Singbhum, Hazaribagh, Jamtara and Khunti in Jharkhand, Hoshangabad, Harda, Khandwa and Burhanpur in Madhya Pradesh, Amaravati and Latur in Maharashtra, Taran Taran, Pathankot and Mohali in Punjab and Pali, Jhunjhunu and Kota in Rajasthan.