The government has decided to completely phase out subsidy on kerosene in five years and on domestic liquefied petroleum gas (LPG) in three years after the dismantling of the administered pricing mechanism (APM) in the oil sector on March 31, 2002.
This marks a major departure from an earlier Cabinet decision to continue with 33.33 per cent subsidy on kerosene sold through the public distribution system (PDS) and 15 per cent on domestic LPG in the post-APM period.
It has now been decided that on PDS kerosene, the subsidy level would be 33.33 per cent of the import parity price only during 2002-03. Over a period of five years, this will be brought down and done away with.
For domestic LPG, although a subsidy equivalent to 15 per cent of the import parity price would be provided during 2002-03, it will be gradually reduced and done away with over three years.
The government has also decided to provide kerosene subsidy only to below poverty level (BPL) families. The number of BPL families in each state and Union Territory would be provided by the department of food and public distribution.
The monthly allocation of each family would be decided by the petroleum ministry in consultation with the finance ministry and food and public distribution department. The ex-depot issue price of kerosene would be fixed by the petroleum ministry in consultation with the finance ministry. This price would remain fixed for a period of six months or one year.
The government might consider administering kerosene subsidy as per the existing mechanism (through the oil companies) or through state governments.
Under the latter, the state governments would source the product at market prices from the oil companies and get subsidy from the central government as per their entitlement. To reduce the financial burden on the budget on account of this subsidy, the government might consider fixing a relatively lower excise duty on kerosene.
The ex-bottling plant issue price for domestic LPG will be fixed by the petroleum ministry after an annual consultation with the finance ministry.
The subsidy worked out on the basis of ex-bottling plant cost price and issue price will be administered through the oil companies.
