DBT in kerosene welcome but implementation key: experts

Leakages in kerosene subsidy system are a matter of great concern

Kerosene, predominantly used as fuel for lighting in rural India, has increasingly been used to dilute diesel, which vastly increases the pollution caused by using the fuel.

The government’s push towards implementing direct cash transfers for kerosene subsidies is a welcome move but implementation remains a key concern, according to experts.

“Such a move will certainly improve the targeting of the kerosene subsidy at a time when around half of the kerosene is currently being misappropriated. But the manner of implementation is key. One has to see whether it will achieve the intended outcomes,” Pronab Sen, economist and Chairman of the National Statistical Commission, told The Hindu .

The government’s decision to incentivise States to move to Direct Benefit Transfer (DBT) in keorsene involves the States being given a cash incentive of 75 per cent of subsidy savings during the first two years, 50 per cent in the third year and 25 per cent in the fourth year.

The significant leakages in the kerosene subsidy system are a matter of great concern, with any attempt to plug the leaks a welcome one.

“Given there is a subsidy and huge leakage, and given that it is not a secret that the other purposes [that kerosene is being put to] are not energy-efficient and not good for the environment, such a scheme is essential,” said N.R. Bhanumurthy, Professor of Economics at the National Institute of Public Finance and Policy. “It is important that all public distribution systems be channelled through the DBT, since the successes in MGNREGS wage transfers and LPG subsidy transfers show that we have the infrastructure in place,” Mr. Bhanumurthy added.

Used to dilute diesel

Kerosene, predominantly used as fuel for lighting in rural India, has increasingly been used to dilute diesel, which vastly increases the pollution caused by using the fuel.

Under the scheme, the consumer will pay the un-subsidised price of kerosene and then receive the subsidy amount in his bank account.

However, the problem with such a transfer system, Dr. Sen explained, stems from the fact that if the quantum of subsidy each household is eligible to is determined on the basis of current kerosene usage, then this means that the subsidy amount transferred to each household would be about double its actual usage, since currently around half is being pilfered.

This creates a situation where kerosene is so highly subsidised that there will never be an incentive for users to shift to cleaner forms of lighting such as solar, Dr. Sen pointed out.