The BJP-led government is proceeding apace to rein in petroleum subsidies, which have been a major fiscal headache for successive governments. First, it turned to the task of wiping out under-recoveries on diesel and >freeing its pricing . Secondly, the direct benefit transfer scheme for cooking gas is >being rolled out across cities . Another recent step is the decision to >do away with the supply of subsidised kerosene through the public distribution system (PDS). Just as in the case of cooking gas, the idea behind stopping subsidised kerosene supply through the PDS is to ensure that subsidies are targeted at those who deserve them and that leakages are plugged. It is estimated that as much as 40 per cent of the subsidised kerosene supplied through the PDS is diverted, mainly to adulterate diesel. The government’s decision to stop PDS supply appears well-founded. According to 2011 Census data, kerosene is no longer a fuel of choice for cooking but is used mainly for lighting. Cooking gas has replaced kerosene in urban and semi-urban areas as per the Census; biomass is the cooking fuel of choice in rural areas, with less than 2 per cent of rural households using kerosene as a medium. Armed with these findings, the government now wants to move to a cash transfer system for rural households that deserve subsidy.
The move will help the government cut down kerosene subsidy to about a fifth of what prevails now. According to data from the Petroleum Ministry, kerosene subsidy, shared between the government and the oil companies, was Rs.31,250.47 crore in 2013-14. This will come down to Rs.5,852.14 crore in the next year following the latest move. The decision, while helping to cut the Central budget deficit, shifts the onus to the States, which will now have to identify households that use the fuel for lighting. The choice will be between direct transfer of cash subsidy to these households on a regular basis, or upfront subsidy for them to install solar lighting systems. With the kerosene subsidy issue thus addressed, the government should now turn its attention to cooking gas subsidy. The fuel is also used by the middle-class and the rich who do not deserve the subsidy. With oil prices sliding, the time is opportune for the government to align cooking gas prices to the market without much pain being felt by consumers. Those found deserving of subsidy can be taken care of by the direct cash transfer mechanism. The time is also ripe for the government to attempt some serious reform of the pricing policies of the oil companies, which are rather opaque at this moment. The policy of linking pricing of fuels such as petrol, diesel and cooking gas with their respective landed costs needs review.
