Government ends subsidy on kerosene

Government ends subsidy on kerosene
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Story Dated : August 3, 2017

The government has taken further steps to gradually reduce subsidy on kerosene, continuing the series of market-oriented reforms that have galvanised the petroleum sector and attracted big-ticket investment after an era of excessive controls, controversies and untargeted subsidies that made it difficult for private companies to operate.

In a recent communication, it has asked state oil companies to keep raising prices of subsidised kerosene by 25 paise every fortnight until the subsidy is eliminated, or until further orders, sources said. The oil ministry had earlier ordered a similar increase only up to July this year.

The fuel is still heavily subsidised but demand for kerosene is falling sharply because villages are being rapidly electrified and the government has supplied cooking gas connections to crores of poor people in the past three years. Delhi and Chandigarh are already kerosene-free cities. Subsidised kerosene is also misused to adulterate diesel.

Officials said oil minister Dharmendra Pradhan is keen to ensure that market pricing of fuels does not hurt the interests of the poorest sections of society. Pradhan has led a massive drive to give 2.5 crore cooking gas connections to the poor. The price of cooking gas is also being increased gradually to eventually align it with market rates. The government has been aggressively discouraging use of subsidised kerosene, mainly used by the rural poor for lighting and cooking, as it is a polluting fuel and sometimes ends up as an adulterant at petrol pumps.

By cutting subsidies, the government is bringing the commodity closer to the market price, which will eventually stop diversion for adulteration as well as encourage consumers to switch to the cleaner liquefied petroleum gas (LPG). A record expansion of cooking gas, especially into the rural and remote areas, and increased supply of electricity in the past three years of the Modi government have provided a cleaner substitute for cooking and lighting to people dependent largely on kerosene so far.

Kerosene consumption has fallen 21 per cent to 66,78,447 kilo litres in 2016-17 mainly on 20 per cent cut in allocation to states by the Centre. A financial incentive to states taking voluntary allocation cuts has also begun helping reduce kerosene sale. The under-recovery for kerosene shrank to Rs 11.39/litre in 2016-17 from Rs 27.93/litre in 2014-15. For a subsidised cooking gas cylinder, the underrecovery went down to Rs 108.78 in 2016-17 from Rs 409.72 in 2014-15.

Kerosene and cooking gas are the only fuels currently subsidised by the government. Pradhan had earlier lifted controls on diesel, which prompted Reliance Industries and Essar to build new petrol pumps. British oil major BP Plc has also taken approval to set up petrol pumps in India.
BP and its partner Reliance have also announced investment of $6 billion in developing a deep-sea gas field, following the government’s decision to reform gas prices and allow higher rates for gas in challenging terrains.
Other reforms undertaken by the government include the end of the controversial profit-sharing system, which obliges the oil ministry to closely monitor oilfield expenditure, leading to bitter disputes with private investors. The new exploration policy also allows market price for gas and gives companies the freedom to carve out exploration blocks themselves.