Fuelling kerosene reform

Reforms in fuel subsidies, especially the freeing of diesel pricing and direct benefit transfer on cooking gas, have certainly been one of the accomplishments of the Modi government. A benign global crude oil price regime certainly helped push through difficult reforms in the sector, but credit has to be given to the Centre for seizing the opportunity. The job of cleaning up the oil mess, though, is only half done. There still remains the contentious issue of reforming subsidies on kerosene, seen as the poor man’s fuel. This, together with rationalisation of subsidy on cooking gas by gradually whittling it down to zero for all except the needy segment, should be done without further delay. Subsidy on the two products together accounted for close to ₹64,000 crore in 2014-15; it might be much lower this year thanks to the lower average price for crude oil. Thankfully, this has not lulled policymakers into complacency. Efforts are apparently on to complete the agenda of reform in the oil sector by rationalising and targeting kerosene subsidy.

The Centre has constituted an expert committee in the petroleum ministry to discuss with the States its plan for kerosene subsidy reform. Unlike other petroleum products, the States allocate subsidy on the fuel which is sold through the public distribution system (PDS) outlets. The Centre has absolutely no say in who gets the subsidy or how it is handed out. As a result, the Centre has no way of eliminating fake beneficiaries of the subsidy which is allocated to States on the basis of the number of BPL cards it has issued. The States also have little interest in setting this right as they don’t bear the subsidy tab anyway. This has proved to be the biggest obstacle in cleaning up the mess in kerosene. Reform is impossible without the buy-in of the States. This is where the expert committee now constituted comes in.

One way of overcoming resistance is to begin with States where the BJP or its alliance partners are in power. The Centre can start working with Rajasthan, Madhya Pradesh, Gujarat, Maharashtra, Haryana, Andhra Pradesh and Chhattisgarh to target subsidies riding on the Jan Dhan account platform which has achieved impressive penetration among the financially excluded. Just as it did in the case of cooking gas where the subsidy is delivered directly into the bank accounts of the beneficiaries, the Jan Dhan accounts of BPL card-holders can be linked with their ration cards to deliver kerosene subsidy directly. A pilot done in Alwar district of Rajasthan in 2011 showed that kerosene demand fell by 67 per cent when the subsidy was directly transferred to the beneficiary. The picture may not be very different across the country. Eliminating kerosene subsidy is important not just for the Centre’s finances but also for its environmental action plan as the fuel pollutes the atmosphere when adulterated with diesel — a common practice due to its low price.