Opposition by the states has forced the Union government to abort a plan to use smart cards in the distribution of kerosene through ration shops in an effort targeted at ensuring that the subsidized fuel reached those families that need it the most and isn’t diverted to adulterate diesel.
The ministry of petroleum and natural gas planned to issue smart cards to families living below the poverty line (BPL families) in three districts across three states—Bihar, Uttarakhand and Maharashtra — as part of a pilot project that was to have started on 1 January this year.
The pilot project never took off and the ministry now says it is almost off.
“We have put the scheme on hold as Bihar, Uttaranchal and Maharashtra want to include above poverty line families as well, to which we are opposed, as it will negate the very concept. It is the states who are not willing to introduce the scheme,” said a senior official in the petroleum ministry who did not wish to be identified.
Had the project taken off, ration shops in these districts would have received just enough kerosene to supply to the BPL families; other buyers would have had to pay market rates for the fuel.
In India, kerosene is available through ration shops at Rs9 a litre. In the open market, the same fuel is available for around Rs25. The states fear that getting people to pay this much could result in a political backlash.
The implementation of the scheme could have helped reduce leakages in the public distribution of kerosene arising from the subsidized fuel reaching families that can afford to pay market rates for it or being diverted to adulterate diesel, which costs between Rs29.21 and Rs35.27 a litre (the price varies across states).
The government-owned oil marketing firms currently lose Rs14.67 for every litre of kerosene sold through PDS (public distribution system). In 2007-08, the total under-recovery on kerosene sales through PDS was Rs17,883 crore. This amount is effectively lost by the government, which makes up for the losses of oil firms by issuing oil bonds.
According to a study carried out by the National Council of Applied Economic Research (NCAER) and commissioned by the petroleum and natural gas ministry, the total amount of kerosene distributed in the country through PDS is around 11 million tonnes per annum (mtpa), of which 35% is diverted. The study further found out that of the volume diverted, 18% is used to adulterate diesel. That would mean that almost 700,000mtpa of kerosene ends up in diesel.
Had the scheme been implemented in its entirety, the under-recovery on account of kerosene would have reduced by over a third, or around Rs6,260 crore.
“As of today, we do not see the introduction of the pilot scheme and it is very difficult to enforce in the absence of cooperation from the states,” the ministry official said.
Mint had earlier reported on the petroleum ministry having to scrap another initiative targeted at reducing subsidies. That one dealt with selling liquefied petroleum gas (LPG) at market rates to people with permanent account number (PAN) cards issued by the income-tax department. The government effectively loses Rs167 on every cylinder sold. In 2006-07, the total under-recovey on petrol, diesel, kerosene and domestic LPG was Rs49,387 crore and at current crude oil prices, the number is expected to touch Rs50,000 crore in 2007-08.
“The objective of the subsidy is to pass on the benefit to the right target audience. Introduction of this scheme would have helped in reducing the kerosene subsidy in a long way but given the challenges, it is very difficult to implement,” said Ajay Arora, partner at auditing firm Ernst & Young.