New Delhi: In an attempt to trim subsidies on kerosene sold through ration shops and to reduce pilferage, India’s apex planning body has, in a written note to the Prime Minister’s Office, suggested a reduction in the supply of subsidized kerosene to urban consumers.
Kerosene is primarily used as a cooking fuel and for lighting in regions without electricity.
The Planning Commission’s proposal stems from the fact that urban consumers have access to both subsidized kerosene and liquefied petroleum gas (LPG) cylinders, a dual subsidy.
In India, kerosene is made available through ration shops at Rs9.22 a litre, while it is sold at around Rs34 a litre in the open market.
Subsidised fuel: A file photo of consumers buying kerosene at a ration shop in New Delhi. Kerosene is made available through ration shops at Rs9.22 a litre, while it is sold at around Rs34 a litre in the open market. Ramesh Pathania / Mint
“We have asked them to decide on this reduction based on the NSSO (National Sample Survey Organisation) data and the degree of electrification in the urban areas,” said B.K. Chaturvedi, member, Planning Commission.
Ration shops are part of the public distribution system (PDS), a government-run network to distribute essential commodities to the poor at fair prices.
According to the ministry of petroleum and natural gas, the total amount of kerosene allocated through PDS was 9.15 million tonnes (mt) in 2008-09. Of this, around 60% is allocated to rural consumers and the rest to urban consumers.
A reduction in supplies to urban areas could prevent subsidized fuel reaching families that can afford to pay market rates for it or such fuel being diverted to adulterate diesel.
According to a study by the National Council of Applied Economic Research (NCAER) that was commissioned by the petroleum and natural gas ministry, 35% of PDS kerosene is diverted. The study further found out that of the volume diverted, 18%, is used to adulterate diesel.
“For example, in large parts of Bihar, this (reduction in supplies) cannot be done as the degree of electrification is low,” Chaturvedi added.
Finance minister Pranab Mukherjee, in his 6 July Budget speech, announced that the government would set up an expert group to advise it on “a viable and sustainable system of pricing petroleum products”.
The government-owned oil marketing firms (OMCs) currently lose Rs15.26 for every litre of kerosene sold through PDS and Rs92.96 on each cylinder of domestic LPG.
In 2008-09, when global crude oil prices peaked, the average losses on kerosene sales through PDS was Rs24.06 per litre.
This loss is effectively borne by the government, which issues oil bonds to companies such as Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd. The total “under-recoveries” for OMCs were Rs1.03 trillion in 2008-09.
The total losses on sale of fuel by OMCs will be around Rs56,000 crore for the current fiscal year, provided crude oil prices remain at current levels. Of this, Rs30,000 crore is on account of kerosene and LPG sales.
“This is something that needs to be done in a phased manner. The entire philosophy for subsidy should not be consistent with the phased out manner of implementing reforms as outlined in the Budget, but also must be completely integrated with the dynamic associated with the existing range within which the international prices are operating,” said Monish Chatrath, leader (national markets), at consultancy Grant Thornton India.