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Govt gets it right, sharp cut in kerosene subsidies PDF Print E-mail
Friday, 07 April 2017 05:14
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With more LPG being supplied, kerosene supplies down a fifth; per unit subsidy down by similar amount

 

A sharp 20% cut in supplies of subsidised kerosene by the government in the first eleven months of FY17—this is more than double the previous high of 9% in FY13—along with an increase in prices by a similar amount, though desirable from the point of view of subsidy reduction, is probably political suicide. Yet, to the extent the results of the last set of assembly elections, including in the populous and poor Uttar Pradesh, can be seen as a verdict on the central government’s policies on subsidy control, the BJP’s moves seem to have passed the political test too. Possibly because, from day one, the Union government’s stated policy on subsidy reduction has been gradual as well as one based on the availability of alternative energy sources—any reduction in kerosene supplies, the government was clear, was to be linked to more availability of either LPG or electricity for the poor. In the first eleven months of FY17, thanks to an all-out push to acquire new cooking gas customers in rural India—those that used either kerosene or wood-chulhas were the target customers of the Ujjwala scheme that has already given free LPG to 2 crore families in rural areas—LPG consumption in the country rose by more than 11%. While kerosene supplies fell from 6.3 million tonnes in the first 11 months of FY16 to 5 million tonnes in the same period of FY17, those of LPG rose to 19.7 million tonnes from 17.8 million tonnes.

 

Apart from reducing vastly-subsidised supplies of kerosene, the central government combined this with a policy of increasing the prices. It is true the hike in kerosene prices was not as steep as the 25 paise per litre per fortnight planned between July 2016 to April 2017, but nonetheless prices rose 22% between this period, from Rs 15.4 per litre (in Mumbai) to Rs 18.8 per litre. The 22% hike is on a par with increases in the retail price of petrol and diesel during this period—in the case of LPG, though, the reduction in subsidies has been a lot more dramatic, from Rs 537.5 per cylinder in July 2016 to Rs 737.5 in April 2017.

 

Since kerosene is supplied through state-government-run ration shops on the basis of lists provided also by state governments, success here has depended on their cooperation with the central government. Petroleum minister Dharmendra Pradhan managed to explain to the state governments that, with 40% of the vastly cheaper kerosene sold in the PDS being used to adulterate petrol and diesel, they too lose out on valuable VAT revenues as much lower quantities of both diesel and petrol were getting sold in each state—to that extent, the interests of both the central and state governments were identically aligned towards curbing the huge diversion of subsidised PDS kerosene. Taking an average VAT rate of 20% and applying that to the market prices of diesel and petrol, that works out to an annual revenue loss of around `3,500 crore for the states. As a result, Pradhan says, states began to cooperate with the Centre to provide lists of persons who deserve the kerosene subsidy and whittling it down wherever possible, keeping in mind the number of households that have got free LPG connections. As the central government reaches more houses through its Ujjwala scheme—the target is to reach 5 crore households by 2019, expect an even sharper fall in kerosene subsidies over the next few years.

 

 

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