The government seems to be finally getting ready to bite the bullet on reforming the kerosene subsidy regime.

The challenge, however, will be to get the States on board. The Ministries of Finance and Petroleum & Natural Gas are working on a proposal that will encourage the States to identify beneficiaries and improve targeting of kerosene subsidy by digitising the States’ database.

“Unlike other subsidies such as LPG and food, the problem with the kerosene subsidy is that it is allocated by the States. The Centre does not have much control over it. So it is really up to the States to work on weeding out fake beneficiaries that in turn could lead to significant savings for both oil companies as well as the government — like in the case of cooking gas,” a senior government official told BusinessLine .

An expert committee, under the Joint Secretary in the Ministry for Petroleum & Natural Gas, has also been set up to discuss the plan with the States.

Formal announcement While direct cash transfers into the beneficiaries’ bank accounts for the kerosene subsidy may not take place immediately, it will be done in a phased manner. A formal announcement of the plan is likely by next fiscal.

Finance Secretary Ratan Watal had last week told reporters that the government plans to restructure the kerosene subsidy.

The government had in December 2011 launched a pilot project for direct transfer of cash subsidy on kerosene in Kotkasim block in Alwar district of Rajasthan. It had revealed that demand for kerosene sold through public distribution system fell 67 per cent in the State.

Apart from domestic LPG, kerosene is the only fuel that continues to be sold at a controlled price. The government has put a cap on subsidised cooking gas at 12 cylinders per household a year.

The Union Budget in 2015-16 allocated ₹8,000 crore as subsidy for kerosene and had paid ₹2,588 crore in the first quarter of the current fiscal to public sector oil marketing companies for selling fuel at a controlled price.

Keen to contain the under recoveries on kerosene, the Centre had in August also capped the subsidy payout on the fuel at ₹12 a litre.

Kerosene consumption was 2.86 million tonnes between April and August this fiscal as against 3.53 million tonnes in the same period a year ago, according to data with the Petroleum Ministry.

(With inputs from Richa Mishra)

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