Kerosene subsidy to be targeted to the really needy

The National Sample Survey 2011-12 indicates that the total consumption of kerosene in the country, including both open market and PDS kerosene, was 71.30 lakh kilolitres.  Even though consumption of kerosene has been coming down over the years, 86.85 lakh kilolitres of subsidized PDS kerosene has been allocated to the States in the year 2015-16, which is higher than the total household kerosene demand in the country.

Thus, there is evidence that some part of the kerosene allocation is diverted for non-eligible purposes.  In recent months, there has been a major increase in coverage of power supply through electrification of villages.

Through the “Give-back” scheme of the Government, nearly 45 lakh new LPG connections have also been given to the poor.  These measures have reduced the demand for kerosene, both for lighting and cooking purposes.

The success of the PAHAL scheme in cooking gas gives an indication of the potential for use of Direct Benefit Transfer (DBT) to ensure that genuine beneficiaries get the benefit of subsidy while preventing illicit diversion. The existing level of State-wise allocation is given in the Annexure.  Subsidy outgo for kerosene for the financial year 2014-15 was about Rs. 24,799 crore.

Several State Governments have come forward to implement DBT in kerosene in selected districts.  The following States have agreed to the introduction of DBT of subsidy for kerosene in the districts mentioned against their names:-

Kerosene subsidy

Where such transfer is introduced, the consumer will pay the un-subsidised price of kerosene at the time of purchase.  Subsequently, the amount of subsidy will be directly transferred to the bank account of the beneficiary.

To avoid any inconvenience to the beneficiary through payment of un-subsidised price, subsidy shall be credited to eligible beneficiaries in advance during the initial purchase.

With a view to incentivize States/UTs to implement DBT in kerosene, it has been decided that the States be given cash incentive of 75% of subsidy savings during the first two years, 50% in the third year and 25% in the fourth year.

In case, the States voluntarily agree to undertake cuts in kerosene allocation, beyond the savings due to DBT, a similar incentive will be given to those States/UTs.  The calculation will be based on net savings in kerosene consumption at State level from the baseline.  The baseline for calculation of savings shall be 90% of the 2015-16 allocation.

While implementing DBT, States have been advised to take all necessary steps to ensure that eligible/genuine beneficiaries particularly in rural areas are able to access their full entitlement of kerosene.  Special care should also be taken in areas having irregular power supply.

The scheme will be implemented with effect from April 1, 2016.  State Governments will be consulted in the meantime before operationalising the scheme.  The working of the scheme will also be reviewed after three months of implementation.