Direct transfer of kerosene subsidy

In a big reform push, the Centre on Friday announced a scheme to implement direct benefit transfers for kerosene subsidies starting April 1 this year, as is already being done for LPG users, by incentivising states to make the transition.

Eight states — Chhattisgarh, Haryana, Himachal Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, Punjab, and Rajasthan — have already agreed to initiate direct cash transfers of kerosene subsidies in a few of their districts. Together, these states will implement DBT for kerosene in 26 districts. The subsidy outgo for kerosene for the financial year 2014-15 was around Rs 25,000 crore.

“The success of the PAHAL scheme in cooking gas gives an indication of the potential for use of Direct Benefit Transfer (DBT) to ensure that genuine beneficiaries get the benefit of subsidy while preventing illicit diversion,” the petroleum and natural gas ministry said in a statement.

Under the scheme, the consumer would be required to pay the full un-subsidised price of kerosene at the time of purchase. The subsidy amount will then be subsequently directly transferred to their bank account.

The Centre is hoping that the incentive program it has unveiled will encourage all of the 29 states and seven union territories to switch to the DBT regime.

“With a view to incentivise States/UTs to implement DBT in kerosene, it has been decided that the States be given 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 statement said.

While such a move has been lauded by economists since the extent of subsidy diversion in kerosene is quite large, the manner of its implementation is still a matter of concern.

“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 problem, 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, he pointed out.

There is a question mark on whether the government will revise downwards the amount of kerosene subsidy that will be given as the issue is a political hot potato.

In case States voluntarily take a cut in the amount of kerosene allocated to them, then the Centre will incentivise them in the same manner as prescribed for the savings on the kerosene subsidy. At the moment, the government allocates 86.8 lakh kilolitres of kerosene to the States.

However, in keeping with the fact that kerosene is mainly used for lighting, the Centre has advised the States to take all necessary steps to ensure that all genuine beneficiaries are able to access their full entitlement of kerosene, with special care to be taken in areas with irregular power supply.

To iron out any chinks in the scheme’s implementation, the government has committed to review it after three months of operations, around July 2016.

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Printable version | Sep 22, 2020 11:15:37 AM |

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