Only un-electrified households will be entitled to subsidised fuel

Attacking the subsidy regime, Union Finance Minister Arun Jaitley has scrapped the supply of subsidised kerosene through the Public Distribution System (PDS). The Centre plans to write to States asking them to provide subsidised kerosene only to un-electrified households. States which have achieved near 100 per cent electrification will be incentivised to become kerosene-free, a Finance Ministry source told The Hindu. In the remaining States, un-electrified households will be given the choice between cash subsidy in lieu of kerosene allocation and upfront subsidy for greener solar lighting systems. This decision comes close on the heels of cuts in the Centre’s social sector spending allocations aimed at aligning plan expenditure with subdued revenue collections.

The allocation of kerosene subsidy will now be in accordance with Census 2011 data, which shows that it’s no longer a fuel of choice for cooking but is used for lighting purposes.

The Census showed that kerosene has been almost completely replaced by LPG in urban and semi-urban areas and biomass is the cooking fuel of choice in the rural areas.

Less than 2 per cent of India’s rural households use kerosene as cooking fuel, according to the Census.

Kerosene subsidy outgo is estimated to come down to Rs. 5,852.14 crore in the next year’s budget to be presented in February. There will no longer be a budget line for PDS kerosene. Total petroleum subsidy (for PDS kerosene, LPG and diesel) was Rs. 63,427 crore in the current year’s budget. Going by the Census data, the UPA government too was gradually phasing out PDS kerosene.

UPA policy on withdrawal taken forward

With the decision to stop the supply of kerosene through the PDS, the Centre hopes it will automatically lead to a reduction in leakage for the adulteration of diesel. PDS kerosene leakages have been estimated to be as much as 40 per cent of the total allocations.

Going by the Census data, the UPA government too had been gradually phasing out PDS kerosene, withdrawing it from 5-7 per cent of the total electrified rural households every year. Earlier, the Modi government put this policy on hold, but now it has decided to do away with PDS kerosene altogether.

After the dismantling of the administered pricing mechanism, the A.B. Vajpayee government in 2002 had rolled out the PDS kerosene and the domestic LPG subsidy scheme. Under the scheme, the subsidy on PDS kerosene is met from budgetary grants of the Oil Ministry. The quantity of PDS kerosene on which subsidy is allowed for each State is limited to the allocations made by the Oil Ministry, on the basis of the actual volumes sold.

The amount of PDS kerosene subsidy is calculated as the difference in cost price and issue price per selling unit.

Currently, State-owned oil companies such as Indian Oil Corporation, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited are allowed to participate in the scheme.