The government's plan to introduce direct cash transfer instead of distributing subsidised kerosene to cut down on leakages could face the hurdle of beneficiary identification.
Unlike direct benefits transfer (DBT) in cooking gas, where oil marketing companies (OMC) had the data of the liquefied petroleum gas (LPG) customers, no such data exists with them for kerosene consumers. OMCs sell kerosene at subsidised rates to dealers, who in turn sell the fuel to fair price shops.
Kerosene is currently distributed to ration card holders under at least three categories for varying levels of quota - above poverty line, below poverty line (BPL) and Antyodaya Anna Yojana. Cash transfer of subsidy would require identifying genuine users and linking their bank accounts with Aadhaar.
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"Unlike LPG, which we monitor at the consumer level, OMCs do not keep data of kerosene consumers, as it is sold through PDS (public distribution system). But if the government is planning cash transfer, these issues would be worked out," said a senior Indian Oil Corporation (IOC) executive.
India consumed 158 million tonnes (mt) of petroleum products in the past financial year, including 7.1 mt of kerosene.
Thanks to near-stagnant domestic prices, OMCs' underrecoveries on kerosene have swelled over the years, leading to significant subsidy sharing burden for the government, too. Subsidised kerosene accounted for 21 per cent or Rs 30,000 crore of total under recoveries of Rs 139,000 crore in FY14. The share increased to 27 per cent (Rs 14,000 crore) of the total underrecoveries of Rs 51,000 crore in the first half of the current financial year.
Kerosene prices have risen marginally from Rs 14.83 a litre in June 2011 to Rs 14.96 at present. OMCs are, therefore, losing Rs 25.69 on every litre.
The Centre is reportedly planning to write to states to provide subsidised kerosene only to un-electrified households. States that had achieved near 100 per cent electrification would be incentivised to become kerosene-free.
Un-electrified households could choose between cash subsidy in lieu of kerosene allocation and upfront subsidy for greener solar lighting system.
According to Census 2011 data, kerosene is no longer a fuel of choice for cooking but is used for lighting purposes. It has been almost completely replaced by LPG in urban and semi-urban areas and biomass is the cooking fuel of choice in the rural areas.
Less than two per cent of India's rural households use kerosene as cooking fuel. Kerosene subsidy outgo is estimated to come down to Rs 5,852 crore in next year's Budget to be presented in February.
Total petroleum subsidy (for PDS kerosene, LPG and diesel) was Rs 63,427 crore in the current year's Budget.
The move is being opposed by Tamil Nadu Chief Minister O Panneerselvam. "If the Union government is actually contemplating such a harsh measure, it would impose considerable hardship on the people of Tamil Nadu," he said in a letter to Prime Minister Narendra Modi.
The state has been urging the government to increase the monthly allocation of kerosene to meet Tamil Nadu's full requirement of 65,140 kilolitre (kl) a month. At present, the allotment of PDS kerosene to Tamil Nadu, after 10 successive reductions from the level of 59,780 kl in March 2010, remains at 29,056 kl.
A task force on direct transfer of subsidies, headed by Unique Identity Authority (UIDAI)'s then chairman Nandan Nilekani, had identified ensuring effective targeting of subsidies as a fundamental challenge and suggested addressing wrongful inclusion.
"A common example is that of the same beneficiary receiving subsidy for both the fuels, kerosene and LPG," the task force had said in its report.
The government had in December 2011 attempted direct cash transfer of kerosene subsidy through a pilot in Rajasthan's Alwar district. It had also planned to roll out the programme nationwide.
Commenting on DBT in kerosene, a committee under former Planning Commission member Kirit Parish had said in its April 2014 report that the success could be achieved only if it was rolled out in all states with the subsidy restricted to BPL families.
"The participating states should also put in place an institutional mechanism to undertake cash transfer of kerosene subsidy to the bank account of ration card holders in an efficient and transparent manner," it had said.
It had recommended the DBT on kerosene for BPL families should completed within two years.
