Kerosene Subsidy Likely to Decline 25% this Fiscal Year

The Centre is reducing kerosene supply by 5% a quarter which, along with additional voluntary cuts by some states, small increases in retail prices, and roll out of direct cash transfer for beneficiaries, is estimated to reduce sales and subsidy by 25% by the end of this fiscal year.


New Delhi: India’s kerosene subsidy is poised to fall sharply as higher supply of cooking gas and rural electrification have encouraged the government to cut supply of the inefficient and polluting fuel that is often diverted to adulterate diesel.

The Centre is reducing kerosene supply by 5% a quarter which, along with additional voluntary cuts by some states, small increases in retail prices, and roll out of direct cash transfer for beneficiaries, is estimated to reduce sales and subsidy by 25% by the end of this fiscal year.

“There is a consensus emerging between the Centre and the states that subsidy will have to be targeted,“ Oil Minister Dharmendra Pradhan told ET. And the effort at targeting subsidy has been greatly aided by the availability of Aadhaar and national socio-economic database, he said.

“With increased access to power and cooking gas, everybody doesn’t need subsidised kerosene,“ Pradhan said, adding that the states have also realised that their revenue collection from petrol pump sales was lower as some of the subsidised kerosene made way to the gray market and states, therefore, have reason to support targeting of subsidy.

Oil ministry officials said the decline in kerosene consumption this year would be the steepest ever. Consumption has been shrinking in lower single digits annually for a decade. Sale of subsidised Kerosene, meant for lighting and cooking for the poor, fell 4.2% to 6.8 million metric tonnes in 2015-16. But this year until August, the fall has been much sharper at 10%. In August, the consumption fell 17%.

The trend would amplify as the financial year draws to a close as the Centre is reducing the alloca tion of subsidised kerosene to states by 5% every quarter. So, a 10% reduction in allocation has already been made by the middle of the current year, and another 10% cut would be achieved by March, officials said.

The allocations to states are being slashed mostly in proportion to the issue of fresh cooking gas connections. States with the higher number of fresh cooking gas subscriptions face deeper kerosene cuts.

State oil companies have added about 1.4 crore new cooking gas subscribers so far this year. Oil ministry officials expect an addi tional 5% reduction in kerosene consumption with some states taking voluntary cuts and the launch of direct transfer of kerosene subsidy helping reduce diversion.

ET VIEW

End Subsidy

The government must phase out of subsidies for kerosene. The reform brooks no delay as it will plug an important leakage in the subsidy regime. Also, the transition away from kerosene will have immense health benefits–directly by moving to cleaner fuels for cooking and lighting, and indirectly by plugging the adulteration of fuel for transport. This, in turn, would help address outdoor air pollution.The government also needs to deliver on the promise of providing LPG cylinders for poor families particularly in rural areas.