New Delhi: Petroleum minister Dharmendra Pradhan on Monday informed the Lok Sabha that fuel retailers Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd have been allowed to increase the retail price of kerosene sold through the public distribution system by 25 paise a litre per month for 10 months.

The minister said in his written reply to a question on the price increase in kerosene that the proposed increase is exclusive of the value added taxes (VAT) applicable in different states. The idea is to narrow losses from selling the fuel below market price and discourage its diversion for adulterating diesel.

In 2015-16, retailers realized 11,496 crore less than what the fuel’s international price warranted. Such revenue losses had been declining over the last three years due to falling global oil prices. An oil marketing company executive said companies have advised states to notify the revised prices.

Simultaneously, the government is taking steps to implement the scheme of transferring subsidy directly to the bank accounts of beneficiaries (direct benefits transfer, or DBT) on kerosene. This is more challenging than in the case of cooking gas, considering the large number of kerosene consumers living in far-flung villages where the number of bank branches may be limited.

“With a view to reach subsidized kerosene to the targeted beneficiaries, it has been decided to implement DBT during 2016-17 in 39 districts identified in consultation with state governments spread across nine states," Pradhan said. The states are Punjab, Gujarat, Himachal Pradesh, Madhya Pradesh, Chhattisgarh, Rajasthan, Jharkhand, Haryana and Maharashtra. The oil ministry has asked other states and Union territories also to join.

Reducing kerosene subsidy is expected to discourage its diversion for unlawful purposes. It is estimated that due to the difference in the market price and the price at public distribution system outlets, about 40% of the subsidized kerosene is diverted for adulterating diesel. The oil ministry had said in January that the allocation of 8.68 billion litres of kerosene to states in 2015-16 was more than the 7.13 billion litres reported by the National Sample Survey 2011-12, despite improvements in village electrification and the higher use of LPG for cooking, indicating its diversion.

In Mumbai, oil firms sell subsidized kerosene at 15.42 a litre at a loss of 13.12, according to the oil ministry’s Petroleum Planning and Analysis Cell.

According to credit rating agency Icra Ltd, kerosene price revision will help in reducing revenue loss from selling the fuel below global market prices by 760 crore in 2016-17.