New Delhi: India’s petroleum ministry is expecting kerosene demand to drop 18% by March 2017 as more households shift to gas for cooking and electricity for lighting with more rural areas gaining access to power.

Demand is projected to fall to 6.75 million tonnes per annum (mtpa) in 2016-17 from 8.28 mtpa now.

“The demand for kerosene is increasingly coming down due to higher penetration of LPG (liquified petroleum gas) cylinders and people in rural areas getting electricity connections under RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana)," a petroleum ministry official said, requesting anonymity.

RGGVY is part of India’s Bharat Nirman project to develop rural infrastructure and aimed at providing electricity to villages and connecting poor households across the country.

“However, the demand for diesel is increasing considerably," the official added.

Diesel demand is projected to grow to 81 mtpa by 2017 from 63 mtpa.

Another petroleum ministry official, who also didn’t want to be identified, confirmed the trend of declining kerosene consumption.

This assumes significance as the government-owned oil marketers such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd posted losses of 29,262 crore on account of selling kerosene at below-market prices.

As much as 35% of kerosene channelled through the public distribution system (PDS) is diverted, according to a study by the National Council of Applied Economic Research commissioned by the oil ministry. Of this, 18% is used to adulterate diesel, it said.

The total loss from selling fuels below cost last fiscal was 1.44 trillion, of which 80,935 crore was due to diesel. The state-owned retailers are compensated by the government for selling diesel, kerosene and cooking gas at fixed prices that are significantly lower than the cost of production.

India subsidizes the prices of most fuels and its annual subsidy bill towards this is expected to be 1.67 trillion this year. India’s oil import bill increased from 4.09 trillion in 2009-10 to 7.26 trillion in 2011-12.

According to the 12th five-year Plan paper on energy, a key reform in the petroleum sector involves “kerosene supplies to be progressively reduced considering improved electricity access provided under RGGVY and LPG connections provided in rural areas".

China and India will be the world’s largest and third largest economies and energy consumers by 2030, respectively, accounting for about 35% of the global population, gross domestic product and energy demand, according to the BP Energy Outlook 2030.

The total amount of kerosene consumed through PDS was 8.92 million tonnes (mt) in 2010-11, according to the oil ministry. There are 140 million LPG connections in the country, of which 99.57% are for domestic use, comprising 14.2kg LPG cylinders, according to official data.

The LPG customer population covers around 56% of the country’s total.

The government recently raised diesel prices and curbed the supply of subsidized cooking gas to six cylinders per household per year to pare its subsidy bill.