The Hindu Business Line : Phase out LPG subsidy, give coupons to poor for buying kerosene: Report

SUBSIDY for domestic cooking gas should be phased out gradually or at least substantially reduced while a more cautious approach in the reduction of kerosene subsidies have been prescribed by the report on `Central Government Subsidies in India,' which was tabled in Parliament on Thursday.

Coupons may be issued only to poor ration card holders to purchase kerosene from a retailer at subsidised rates to deter direct diversion of subsidised kerosene to other sectors, says the report prepared by the Finance Ministry with the aid of the National Institute of Public Finance & Policy.

"LPG subsidy benefits largely the higher expenditure groups in urban areas and may be regressive. Kerosene subsidy is prone to mis-utilisation with about half of the subsidised kerosene supplies diverted and never reaching the intended groups," the report tabled by the Finance Minister, Mr P. Chidambaram said.

It noted that the urban areas receive a larger subsidy on kerosene while limited availability forced rural population to use it for lighting purposes rather than cooking.

"These arguments suggest that LPG and kerosene subsidies are ineffective in serving the desired objectives," it said recommending removal of LPG subsidy in a gradual manner or at least a substantial reduction in the subsidy element.

A more cautious approach may be taken for kerosene, it said, adding that channelising all kerosene sales through the retail markets to encourage small distributors of fuels could be an alternate to cash transfer to the poor to compensate for the reduction or elimination of subsidy.

With only state-owned oil companies allowed to market subsidised domestic LPG and kerosene, the entry of private retailers have been curtailed, stifling competition.

"A market environment encouraging fair and healthy competition is the most effective way to expand the supply and availability of competitively priced LPG and kerosene," the report suggested.

Kerosene subsidies peaked to Rs 8,151 crore in 1999-2000 and came down to Rs 3,018 crore in 2002-03, while LPG subsidy stood at Rs 3,691 crore.

The "unprecedented and steep rise" in the international prices of crude and petroleum products has jacked up the oil subsidy bill of the Central Government from Rs 5,225 crore in 2002-03 to Rs 6,573 crore in 2003-04.