Issue 1. Volume 2. December 2014 http://www.iisd.org/gsi/ A biannual survey of energy subsidy policies INDIA ENERGY SUBSIDY REVIEW • In fiscal year 2013-14, the Government of India and associated public sector enterprises spent Rs. 142,471 crore (USD $23.4bn) subsidizing the retail prices of diesel, Liquefied Petroleum Gas (LPG) and kerosene. The Ministry of Finance projects total under- recoveries of approximately Rs. 80,000 crore (USD $13.1bn) in FY 2014-15. • The UPA government’s policy of incrementally increasing the retail price of diesel was continued by the newly-elected NDA administration, and as of September 2014 diesel under-recoveries had been completely removed. On 18 th October 2014 the government announced the formal decontrol of diesel prices with immediate effect, with the publicly-owned Oil Marketing Companies (OMCs) reducing retail diesel prices by Rs. 3.37 per litre. • Following the introduction of an initial cap on the consumption of subsidized LPG of six cylinders per household in January 2013, the UPA government subsequently increased the quota to the current level of 12 cylinders per household in January 2014, which the new administration has not altered. In October 2014 the government announced its intention to fix the total subsidy per cylinder, and reintroduce the Direct Benefit Transfer for LPG (DBTL) scheme previously adopted (and then suspended) by the UPA. In November 2014 it was reported that the per-cylinder subsidy would be fixed at Rs. 568 from March 2015. • The reduction in Public Distribution System (PDS) kerosene consumption has continued into 2014, with the NDA government retaining the UPA administration’s policy of progressively restricting total supply. • The UPA government’s decision to revise the price of natural gas prices on the basis of the Rangarajan Committee’s recommendation, initially intended to take effect in April 2014, was stayed by the Election Commission (EC) for the period of the parliamentary elections. Following two further postponements of the decision by the new NDA administration, in October 2014 the government announced an increase in the price of gas on the basis of a modified version of the Rangarajan pricing formula, rising from USD $4.2 per million BTU to USD $5.61 per million BTU with effect from 1 st November 2014. Highlights
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Issue 1. Volume 2. December 2014
http://www.iisd.org/gsi/
A biannual survey of energy subsidy policies
INDIA ENERGY SUBSIDY REVIEW
• Infiscalyear2013-14,theGovernmentofIndia and associated public sector enterprises spentRs.142,471crore(USD$23.4bn)subsidizingtheretailpricesofdiesel,LiquefiedPetroleumGas(LPG)andkerosene.TheMinistryofFinanceprojectstotalunder-recoveriesofapproximatelyRs.80,000crore(USD$13.1bn)inFY2014-15.
• TheUPAgovernment’spolicyofincrementallyincreasing the retail price of diesel was continuedbythenewly-electedNDAadministration,andasofSeptember2014dieselunder-recoverieshadbeencompletelyremoved. On 18th October 2014 the government announced the formal decontrol ofdieselpriceswithimmediateeffect,withthepublicly-ownedOilMarketingCompanies(OMCs)reducingretaildieselpricesbyRs.3.37perlitre.
• FollowingtheintroductionofaninitialcapontheconsumptionofsubsidizedLPGofsixcylindersperhouseholdinJanuary2013,theUPAgovernmentsubsequentlyincreasedthequota to the current level of 12 cylinders per householdinJanuary2014,whichthenewadministration has not altered. In October
2014 the government announced its intention tofixthetotalsubsidypercylinder,andreintroducetheDirectBenefitTransferforLPG(DBTL)schemepreviouslyadopted(andthensuspended)bytheUPA.InNovember2014itwasreportedthattheper-cylindersubsidywouldbefixedatRs.568fromMarch2015.
• ThereductioninPublicDistributionSystem(PDS)keroseneconsumptionhascontinuedinto2014,withtheNDAgovernmentretainingtheUPAadministration’spolicyofprogressively restricting total supply.
• TheUPAgovernment’sdecisiontorevisetheprice of natural gas prices on the basis of the RangarajanCommittee’srecommendation,initiallyintendedtotakeeffectinApril2014,wasstayedbytheElectionCommission(EC)for the period of the parliamentary elections. Following two further postponements of the decisionbythenewNDAadministration,inOctober 2014 the government announced an increase in the price of gas on the basis of a modifiedversionoftheRangarajanpricingformula,risingfromUSD$4.2permillionBTUtoUSD$5.61permillionBTUwitheffectfrom1stNovember2014.
Highlights
Contents
Highlights
Introduction
Part One: Recent trends in fossil-fuel pricing policy• Diesel • LPG• Kerosene • Recommendations
Part Two: Guest analysisDomesticLPGSubsidyandDistributionin India: From the undeserved to the underservedAbhishek Jain and Karthik Ganesan (CEEW)
DirectTransferofSubsidies:CaseofpilotprojectinKotkasim,AlwarAnjali Ramakrishnan, Madhura Joshi, and Anmol Soni (TERI)
The Last WordTheUnstablePoliticalEconomyofNaturalGasPricinginIndiaSubhomoy Bhattacharjee (Indian Express)
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IndiaEnergySubsidyReviewis published by The International Institute for SustainableDevelopmentInternationalEnvironmentHouse2,ChemindeBalexert,5thFloor1219,Chatelaine,Geneva,Switzerland
Thenegativesocialandenvironmentalimpactsoffossil-fuelsubsidiesarewidelyacknowledged.Bydistortingpricesignals,petroleumproductsubsidiesartificiallyinflatedemand,leadingtoincreasedconsumptionandassociatedemissionsofgreenhousegasesandotherpollutants.Theydis-incentivizeimprovementsinenergyefficiencyandthedevelopmentofcleanerenergyservices,andcontributetofueladulterationandtrafficking.Fuelsubsidiesarealsotypicallysociallyregressive,andcarryasignificantsocialandeconomicopportunitycostbydisplacingmoreeffective social and infrastructural investment.
Inthefirsttwoquartersoffiscalyear2014-15,publicly-ownedOilMarketingCompanies(OMCs)continuedthepolicyofimplementinggradualmonthlyincreasesinretaildieselpricesintroducedbytheUPAgovernmentinJanuary20132.Followingthetemporarysuspensionofscheduledrateincreasesduringtheparliamentaryelections,theOMCsimplementedthedelayedrisesinmid-May3,withtheincomingNDAadministrationconfirmingitsintentionto continue the policy4.Scheduledpriceincreaseswerethenimplementedon1stJune,1stJuly,1st August and 31stAugust,leading(inconjunctionwithaperiodofexchangeratestabilityandfallingoilprices)totheeffectivecessationofdieselconsumptionsubsidiesbySeptember2014.On18th October 2014 the government announced the formal decontrol of diesel prices with immediate effect5,withOMCsreducingretaildieselpricesbyRs.3.37perlitre6.
LPG:
Infiscalyear2014-15(todate)therehavebeennosignificantincreasesintheretailpriceofsubsidizedLPG7. The NDAadministrationhasretainedthepreviousUPAgovernment’sJanuary2014decisiontoincreasetheannualperhouseholdcylinderquotafrom9to12perhousehold.Inaddition,on27th August 2014 the new administration announcedtheremovaloftheseparatemonthlyrestrictiononcylinderreleaseofonepermonth,andproposedthereintroductionoftheDirectBenefitTransferforLPG(DBTL)schemepreviouslyadopted(andsubsequentlysuspended)bytheUPAinJanuary20148. On 18thOctober2014thegovernmentannounceditsintentiontofixthetotalsubsidypercylinder,andreintroducetheDBTLschemeintwophasescommencinginNovember20149. On 10thNovember2014itwasreportedthattheper-cylindersubsidywouldbefixedatRs568fromMarch201510 – an amountRs163.36abovetheaveragepercylinderunder-recoveryrecordedinearlyOctober201411.
Part One: Recent trends in fossil-fuel pricing policy
Issue 1. Volume 2. December 2014
Figure 1: Total diesel, LPG and kerosene subsidy / subsidy as % of GDP (2008/09-2013/14)
InJune2013theUPAadministrationannounceditsintentiontorevisethepriceofnaturalgassuppliedundertheAdministeredPriceMechanism(APM),withthepotentialtosignificantlyaffectinputpricesinkeysectorsandincrease related power and fertilizer subsidy outlays13. The scheduled revision to gas prices on the basis of the RangarajanCommittee’srecommendedformula,notifiedinJanuary2014andinitiallyintendedtotakeeffectinApril2014,wasstayedbytheElectionCommission(EC)fortheperiodoftheparliamentaryelections14. On June 25ththenewNDAadministrationthenannounceditsintentiontopostponeafinaldecisiononpricerevisionforaperiodofthreemonthswiththestatedaimofallowingconsultationswithkeystakeholders15. On 24thSeptemberthegovernmentthenannouncedafurtherpostponementofthedecisionto15thNovember201416. On 18th October 2014thegovernmentannouncedanincreaseinthepriceofgassuppliedundertheAPMonthebasisofamodifiedversionoftheRangarajanformula,risingfromUSD$4.2permillionBTUtoUSD$5.61permillionBTU17 with effect from 1stNovember2014until31stMarch2015,withfuturepricerisestobeimplementedonabi-annualbasis18.
Figure 7: Imports, Exports, Trade Balance, Net Invisibles and Current Account Balance (2006/07-2013/14)
Source:RBI(2014)
India’soilconsumptionremainshighlyimport-dependent,withimports(predominantlycrude)representing77.6%oftotalconsumptioninFY2013-14(itwas77%inFY2012/13and75.9%inFY2011/12)28. The share ofoilandpetroleumimportsintotalimportshasincreasedsignificantlyinthepreviousfouryears,risingfrom27.7%inFY2010-11(USD$105bn,withintotalimportsofUSD$369.8bn)to36.7%inFY2013-14(USD$165.2bn,withintotalimportsofUSD$450.1bn)(seeFigures9and10).
Figure 9: Oil and petroleum product imports within total imports (2010/11-2013/14)
Issue 1. Volume 2. December 2014 9
Source:RBI(2014)
Figure 10: Total POL imports / POL as % of total imports (2010/11-2013/14)
Diesel
Dieselisusedinawiderangeofsectorsincludingtransport,agricultureandpowergeneration,andisprincipallysuppliedthroughretailoutletsoperatedbythethreepublic-sectorOMCs.Afteradecadeofconsistentyear-on-yeargrowth,totaldieselconsumptionrecordedafullyeardeclineof1%inFY2013-14(Figure11).Following12monthsofstaticornegativemonthlygrowthinFY2013-14,dieselconsumptionregisteredpositivemonthly(year-on-year)growth from May to August 201429,beforedecliningmarginallyinSeptember2014(Figure12).
Asaresultofpricereformmeasures,astrengtheningdomesticcurrencyandfallinginternationaloilprices,quarterlydieselunder-recoveries(bothinabsolutetermsandasashareoftotalproductunder-recoveries)declinedrapidlyinthefirsthalfof2014,decreasingfromRs.15,182croreinQ4FY2013-14(January-March)toRs.9,037croreinQ1FY2014-15(April-June)(seeFigure13).FollowingthefurtherscheduledmonthlypricerisesimplementedinJulyandatthebeginningandendofAugust-andcoincidingwithaperiodofcontinuedexchangeratestabilityandoilpriceweakness-unitunder-recoveriesondieselhadbeencompletelyremovedbySeptember(withOMCsrecordingnetprofitsonthesaleofdieselfrommid-Septemberonwards).On18th October 2014 the government then announced theformaldecontrolofdieselprices,allowingtheOMCstopricedieselonacost-recoverybasis30.
Unliketheotherdesignated“sensitive”petroleumproductssubjecttopriceregulation(LPG,andpreviouslydieselandpetrol),thecentralgovernmentpre-determinesthevolumeofPDSkeroseneavailableforconsumption.Per-statePDSkeroseneallocationsarecalculatedbytheMinistryofPetroleumandNaturalGas(MoPNG)andkeroseneis released for delivery on a quarterly basis36,withtheDepartmentofFoodandCivilSupplieswithineachstateandUnionTerritory(UT)responsibleforensuringupliftofquotaallocationanddistributiontoretailoutlets37.
Thecentralgovernmenthasattemptedtocontainkeroseneuse(andrelatedsubsidies)forseveralyearsbyprogressivelyreducingtheavailabilityofkerosenewithinthepublicdistributionsystem38. The average rate of reductionintotalannualPDSkeroseneallocationshasincreasedsignificantlyintheperiodfromFY2009-10onwards,withallocationsfallingby7.9%,8.5%and4.2%in2011-12,2012-13and2013-14respectively.
- Despitethedecontrolofretaildieselprices,therestillremainsalargepricedifferentialbetweendiesel andpetrolprices,reflectingpreferentialtaxationondiesel.Movesshouldbeundertakentorevisediesel taxation upwards on an incremental monthly basis over time until tax parity with petrol is reached. Thisshouldbecombinedwiththeformulationandimplementationofacoherentlong-termfueltaxation policyaccuratelyreflectingtheexternalitiesgeneratedbydifferentfuels.
- TheGlobalSubsidiesInitiativehasarguedagainsttheefficacyoftheDBTLprogramforLPGforreasons ofadministrativeefficiency,equityandcost.TheproposedreintroductionoftheDirectBenefitTransfer forLPG(DBTL)schemeshouldthereforebesuspendedpendingimprovementsinfinancialinclusion, subsidy targeting and ease of implementation.42
19Includingunder-recoveriesfordiesel,domesticLPGandPDSkerosene,anddirectsubsidiesfordomesticLPGandPDSkerosene.Thisfiguredoesnotincludefurthercostsincurredbypublicly-ownedOilMarketingCompanies(OMCs)inrelationtogasimportationandcorporateborrowing(duetodelaysinreceiptofcompensatorypayments),freightsubsidiesadministeredundertheFreightSubsidyScheme(2002),centralgovernmenttransferstoselectedstateswiththe(nominal)purposeofcompensatingfarmersfordieselconsumptionduringperiodsoflowrainfall,subsidyexpenditureonLPGandkerosenesuppliedtoBhutan,customsduty,exciseorsalestaxexemptions,state-levelpricesubsidies,oranydirectorindirectsubsidyexpenditure related to natural gas.
20SeeforexampleDey(2014).
21 Reported fortnightly on a unit basis.
22 Fiscal subsidy data is not currently reported on a quarterly basis.
39Inaddition,theIndiangovernmentsubsidizesallkerosenesuppliedtoBhutanthroughthebudgetoftheMinistryofExternalAffairs(MEA).In2012-13IOCsuppliedatotalof4,311tonsofkerosenetoBhutan(PressTrustofIndia,2013),incurringanestimated subsidy of approximately Rs. 18 crore.
BankofEngland.(n.d.).Statistical database: Interest and exchange rates data.London:BankofEngland.Retrievedfromhttp://www.bankofengland.co.uk/boeapps/iadb/Index.asp?first=yes&SectionRequired=I&HideNums=-1&ExtraInfo=true&Travel=Nix
Business Standard(2014a,August28)Govtplanstore-launchbenefitstransferincookinggasdistribution.Retrievedfromhttp://www.business-standard.com/article/economy-policy/govt-plans-to-re-launch-benefits-transfer-in-cooking-gas-distribution-114082800023_1.html
Business Standard (2014b,September25)DecisionongaspricerisedeferredtillNovember15.Retrievedfromhttp://www.business-standard.com/article/economy-policy/decision-on-gas-price-rise-deferred-till-november-15-114092401271_1.html
CabinetCommitteeonEconomicAffairs(CCEA)(2014,October18),Modified direct benefit transfer scheme to be re-launched in the country.NewDelhi:GovernmentofIndia.
GovernmentofIndia(2013).Report of the Expert Group to Advise on Pricing Methodology of Diesel, Domestic LPG and PDS Kerosene.NewDelhi:GovernmentofIndia
Gupta,P.(2014,September24).EstimatingkeroseneleakagesfromthePublicDistributionSystem. Ideas for India. Retrieved from http://ideasforindia.in/article.aspx?article_id=348
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The Hindu(2014,June25)CCEAdefersgaspricerevision.Retrievedfromhttp://www.thehindubusinessline.com/economy/policy/ccea-defers-gas-price-revision/article6148318.ece?ref=relatedNews
Mehdudia,S.(2013,July27)‘Despiteopposition,Cabinetapprovesgaspriceincrease’.The Hindu. Retrieved from http://www.thehindu.com/business/Industry/despite-opposition-cabinet-approves-gas-price-increase/article4857220.ece?homepage=true
Mehra,P.(2014,November12)Govt.LPGsubsidycappedatRs.20akg.The Hindu. Retrieved from http://www.thehindu.com/news/national/govt-lpg-subsidy-capped-at-rs-20-a-kg/article6588020.ece
PressTrustofIndia(PTI)(2013,August1).IOCrestoressupplyofLPG,kerosenetoBhutan.Economic Times. Retrieved from http://articles.economictimes.indiatimes.com/2013-08-01/news/40963210_1_lpg-supplies-bhutan-kerosene
PTI(2014a,June1).Dieselpricehikedby50paisealitre.Indian Express. Retrieved from http://indianexpress.com/article/business/business-others/diesel-price-hiked-by-50-paise-a-litre/
PTI(2014b,October29).SubsidisedLPGratehikedbyRs3percylinder.Business Standard. Retrieved from http://www.business-standard.com/article/pti-stories/lpg-rate-hiked-by-rs-3-per-cylinder-114102900359_1.html
Ranjan,A.(2014,November10.LPGsubsidyfixedatRs568,pricetochangeafterMarch.Indian Express. Retrieved from http://indianexpress.com/article/business/business-others/lpg-subsidy-fixed-at-rs-568-price-to-change-after-march/99/
ReserveBankofIndia(RBI)(2014).Handbook of statistics on the Indian economy:2013-14.NewDelhi:GovernmentofIndia.
Surabhi(2014,August20).GovtlikelytoreviewinclusionofkeroseneinDBTscheme.Indian Express. Retrieved from http://indianexpress.com/article/business/business-others/govt-likely-to-review-inclusion-of-kerosene-in-dbt-scheme/
Part Two: Guest analysis
Domestic LPG Subsidy and Distribution in India: From the undeserved to the underserved AbhishekJainandKarthikGanesan(CEEW)
Nearly90percentoftheLPGconsumptionisaccountedforbyhouseholds(MoPNG,2013).However,accordingtotheCensus2011,only28.5%ofhouseholdsstatedthatLPGwastheirprimarycookingfuel,whilethefiguresondomesticconnectionssuggestthatnearly47.5%ofhouseholdshadLPGconnectionin2010-11i44 . This clearly indicates that there isacontinueddependenceontraditionalfuels,notjustbyhouseholdsthatdonotuseLPG,butalsobyalargenumberofhouseholdsthatusethemtosupplementtheirLPGconsumption.
1. Therichest30%ofIndianhouseholdsreceivemorethan50%oftotalsubsidyexpenditure.Inaddition, thereisalargerural-urbandivideintheconsumptionofLPGandhencetheaggregatedshareofsubsidy received.Nearlytwo-thirdsofthedistributorsandLPGconsumersareintheurbanareas.2. Thecurrentcap(of12cylinders)issetatalevelwellbeyondtheaverageconsumptionofhouseholds (estimatedatapproximately7cylinders)andsubsidiseswastefulconsumption,leavingasignificant scope of diversion to unintended uses and users.3. DespitetheLPGsubsidy,thelowerincomegroupsspendadisproportionatelyhighershareoftheir monthlyexpendituresonprocuringcookingenergy.4. TheLPGsubsidyalongwiththecurrentdistributionarrangementshasnotsucceededinfacilitatinga transitionfromtraditionalfuelstoLPG,especiallyforthepoor.Traditionalfuelssuchasfirewood, animaldung,agriculturalwastes,etc.continuetobewidelyusedandcontributetothemajorityof the energy needs of the poor. The negative externalities associated with the consumption of these fuels also fall squarely on these poor households and further add to their economic burden.
LPGsubsidyinitscurrentformisintendedtomakethefuelmoreaffordable.However,theinterventionstoimprovetheadoptionofLPGinruralhouseholds(andtheurbanpoor)mustalsofocusonimprovingphysicalaccesstoit,i.e.,toincrease the penetration and availability of fuel in all areas and to raise awareness about the health and local environmental benefitsoftransitioningtotheuseofLPG.Inrecentyears,schemessuchtheRajiv Gandhi Gramin LPG Vitaran Yojana (RGGLVYlaunchedin2009)haveattemptedtoincreasetheLPGpenetrationinruralareasthroughsmallsizeandlowcost
Issue 1. Volume 2. December 2014 21
distributionmodels.TheschemehasmetwithmoderatesuccessbutmorerobustmethodsareneededtomakeuniversalLPGaccessareality. Withregardtoawarenessgeneration,therehavebeensporadiceffortsinspecificpocketsbyentitiessuchasHindustanPetroleumtoraiseawarenessanddemonstratethesuperiorityofLPGasacookingfuelcomparedtootheroptions.TheRasoi Gharscheme,whichprovidesforcommunitykitchensusingLPG,andtheSuraksha Sanchetna Abhiyan information campaignonLPGconservationandbenefits,haveshownpositivebenefitsaccordingtothestudiesthatevaluatedthem.
The Road Ahead
BasedontheanalysisofthesubsidydisbursalmechanismandthecurrentreachofLPGdistribution,itissuggestedthatall three elements of affordability, availability and awareness be focused on simultaneously. This will effectively achieve the statedobjectivesofLPGsubsidyinthecountry.Ourkeyrecommendationstothiseffectarethreefold:
Evidence from literature and our analysis of household consumption patterns suggest that it is desirable to limit the proportionofhouseholdexpenditureoncookingenergyconsumptionto6percent(anormativeaffordabilitylimit).Thepooresthouseholdsinthecountrytodayspendcloseto8percentoftheirexpenditureoncookingenergywhiletherichestspend as little as 2 per cent. In order to reduce this disparity in outlay for various economic strata it is recommended that the top 10-15 per cent of Indian population (by income) can be excluded from the subsidy provision for domestic LPG. For the bottom ~30 per cent of the population, which roughly translates to the Below Poverty Line (BPL) population of the country, the subsidized price of domestic LPG must be lowered in order to enable higher levels of adoption. The population thatdoesnotbelongtoeithergroupwillwitnessamarginalincreaseinthepriceofLPG(basedonthecurrentpriceofcrude).
Thewealthyhouseholdsthataretobeexcludedfromsubsidyprovisionunderthisproposalcanbeidentifiedthroughdiversemetricssuchasincometaxstatus,ownershipoffour-wheelerpassengervehicles,ownershipofluxuryassets(SECCdatabase)orviaKnowYourCustomer(KYC)exercisetobeconductedbyOMCs.Itisalsolikelythattherewillbethe least resistance from this group to any proposals to decrease or withdraw subsidies.
ArecentannouncementbythegovernmenthasindicatedamovetofixthesubsidyonofferpercylinderasopposedtotheprevailingpracticeoffixingthepriceofsubsidizedLPG(CCEA,2014).Thismoveisaimedatcontainingthesubsidyoutflowwhenglobaloilpricesreboundfromthecurrentlows.Whileitisastrategicmovetoimplementsuchamechanismwhenoilpricesarelowandmorepalatablefortheaverageconsumer,thisdoesnotaddressanyoftheissuesthathavebeenraisedwithregardtotheinequityindisbursalofsubsidy.Itismerelyashort-termfixforachronicailment,whichwillresult in an adverse impact on the affordability for poor households once global crude prices rise.
InordertoimproveavailabilityandtoincreasethereachofLPG,novelmechanismsliketheuseofself-helpgroups(SHGs)and existing rural supply chain and extension counters of distribution agencies can be used for delivery purposes. The requisitetraining,informationprovisionandinitialexposuretothecommodity(andthestoves)areimperativetoincreaseadoptionandusage,especiallyamongruralhouseholds.
CCEA.(2014).Modified direct benefit transfer scheme to be relaunched in the country.RetrievedOctober30,2014,from http://pib.nic.in/newsite/erelease.aspx?relid=110694
MoPNG.(2009).OilsectorVision2015for“Consumer Satisfaction and Beyond.”RetrievedJuly16,2014,from http://pib.nic.in/newsite/erelease.aspx?relid=49446
MoPNG.(2013).LPG Cooking Fuel: A Quantum Leap in Service to the Customers.PIB.Retrievedfrom http://pib.nic.in/newsite/efeatures.aspx?relid=98430
MoPNG.(2014).Fiscal subsidy on domestic LPG.RetrievedOctober07,2014,from http://pib.nic.in/newsite/PrintRelease.aspx?relid=107625
Sethi,S.P.(2010).AnalysingtheParikhCommitteeReportonPricingofPetroleumProducts.Economic and Political Weekly, xlv(13).Retrievedfromsanhati.com/wp-content/uploads/2010/07/surya_sethi_epw2010.pdf
References
Direct Transfer of Subsidies: Case of pilot project in Kotkasim, Alwarii
InDecember2011,theGovernmentofRajasthan,withsupportfromthecentralgovernment,launchedapilotschemeinKotkasim,Alwar,RajasthantotestasystemofdirecttransferstothebankaccountsofrationcardholdersasameansofdistributingPDSkerosenesubsidies.Asperthescheme,themonthlyallocationof3litrestoeveryrationcardholderissuppliedatamarketrate(whichequalsthedepotrateplusstate-leveltaxes).Thesubsidyamount(asdeterminedbythestateauthorities)isthentransferredtothebankaccountsoftherationcardholderonaquarterlyormonthlybasis.Thisrequireseverybeneficiarytohaveanoperatingbankaccountwithanyofthedesignatedbanksunderthescheme. TheEnergyandResourcesInstitute(TERI),supportedbytheInternationalInstituteforSustainableDevelopment(IISD),undertookastudytoassessandevaluatetheefficacyofthepilotprojectinKotkasim.Thestudyfocusedonwhetherthehouseholdshadaccesstothesubsidyandexaminedeaseofaccess,theimpactonhouseholdexpenditure,andachievementofpolicyobjectives.Itconcludedwithananalysisoftheimplicationsthatemergedfromthepilotforthekerosenesubsidysystemandprovidedrecommendationsforimplementationofsuchschemesin the future.
Theprocessofevaluationinvolvedmeetingswithschemeparticipants,includingdistrictofficials,bankofficialsandfairpriceshop(FPS)dealers.Basedonkeyinterviewsandpre-fieldworkactivities(multiplebriefvisitstovillagestotestawarenessaboutthescheme),abeneficiaryquestionnairewasdesignedandadministeredin160householdsinfourvillages.Alongsidetheprimarysurvey,theresearchteamalsoconductedfocusgroupdiscussionstogetabetter understanding of the issues faced by the households.
whichsignificantlyaffectedtheirattitudestowardsimplementingthescheme.Untilrecently,theircommissiononthesaleofkeroseneinRajasthanwasRs.0.9/litre,insufficienttomeettheircosts.ThiswaslaterraisedtoRs.2.7/litre.Sincethesedealersendupbeingthefirstpointofcontactandinformationforthehouseholds,itisimportantthattheir concerns are also addressed.
1. Adequate planning time and preparation of a structured system for information dissemination must be assured well before launch of the scheme.2. Theopeningofbankaccountsforallbeneficiaryhouseholdsshouldtakeplacebeforelaunchofthe scheme. 3. Accesstobankingfacilitiesmustbeextendedinvillagestoavoidmultipletripstothebankand additional time costs borne by the households in accessing the subsidy. A possible adoption of theBankingCorrespondent(BC)Modelmightbeconsidered.4. Incentives(highercommissions,accesstoinformation)shouldbeprovidedforFPSdealersto productivelyparticipateasacentralfocalpointintheroll-outandmanagementofcashtransferschemes forkeroseneinordertoensuretheiroptimalpenetration.Involvinglocalstakeholdersinthe implementationprocesscansignificantlyboostawarenessamonghouseholdsbygivingthema local source of reliable information. 5. Digitizationoffuelpurchases(recordedthroughthehouseholdrationcard)anddealertransactionsover timecanensurepermanentandtamper-proofmaintenanceofrecords. Reducing“leakages”inthecurrentpublicdistributionsystemiscrucial;however,itisequallyimportant to ensure that the new system does not bring about additional challenges and welfare impacts for the householdsthatendupleavingthem,quiteliterally,inthedark.
i This calculation would hold assuming that multiple connections within the same household do not exist.
iiThisarticleisbasedontheTERI(2014).Evaluation of the Pilot Project on Direct Transfer of Kerosene Subsidies in Kotkasim, Alwar.Geneva:InternationalInstituteforSustainableDevelopment.Availableat:http://www.iisd.org/gsi/sites/default/files/ffs_india_kerosene_alwar_final.pdf
Notes
The Last Word
The Unstable Political Economy of Natural Gas Pricing in IndiaSubhomoyBhattacharjee(IndianExpress)
TheModiadministrationhasdecidedtoraiseIndia’snaturalgasprices,takingeffectNovember1,2014.This was surprising both for the comprehensive nature of the decision and for the fact that the government waswillingtocourtsignificantpoliticalrisksindoingso.Inonemove,thegovernmenthasremovedimportparityingaswhichwasacceleratingcostpressuresfordownstreamgasconsumers,despitetheattractionsthatsuchprice-settingmechanismsofferedforinvestmentsinexploration.ThedecisionbythecabinetcommitteeonpoliticalaffairscamebeforeareviseddeadlinesetforNovember15,2014expiredandwaspartofaseriesofquickstepstheModiadministrationtooktoreformtheenergysectorinrecentdays(asdiscussedthroughoutthispaper). ItwasinthecardsthatthegovernmentwouldrevisedieselpricesafteritwasfinishedwithtwocriticalstateassemblyelectionsonOctober15,2014.ButtherevisioningaspriceswasfranklymoredifficultsincetheUPAgovernment(andnoweventheBJPgovernment)wasbuildingupanalternatesubsidyonnaturalgasusagetodeflectpoliticalcriticismonphasingoutdieselsubsidiesandeventuallythoseonLPGandkerosene.ThepricingofnaturalgasisconsequentlyapoliticaleconomydecisioninIndia,carryingthesamebaggageasthatforfuelproducts.Ithasbecomemorecomplicated,astheIndianSupremeCourtinSeptemberhascancelledallallocationsofcoalblockssince1993,whichcouldaffectdomesticcoalprices.As60percentofIndia’spowerstationsusecoal,thepressuretokeepthepriceofnaturalgas(whichpowers9percentofIndia’spowerstations)flatincreased.
ThesearedevelopmentswhichwerenotevenfactoredinaskeyenergysectorfinancingorsubsidyrisksbyanalystswhenfinanceministerArunJaitleywrotehisbudgetinJulythisyear.Reportsdiscussedtwootherrisks.Thefirstwasthatthemonsoonscouldfailandengenderarunawaydemandfordieseltorunthegeneratorsetsforirrigatingrain-dependentcrops.TheotherwasthattroubleintheMiddleEastcouldpushcrudepricesupsignificantly.Intheend,neitherofthesecametofruition.ReserveBankofIndiaGovernorRaghuramRajanpointedtotheseencouragingdevelopmentsinrecommendingthatthegovernment eliminate the administered pricing of diesel.
Thegovernmenthasnowtakenthreedecisionsonnaturalgas.Ithasadoptedanewformulatodecideonthe appropriate price for gas produced in India. It has made this price applicable for all private and state ownedgasextractioncompaniesreducingcomplexityandfinallyannouncedanincentiveschemeforinvestmentsindeepseaorinthedifficultNorthEastregion.
Butthesubsidyproblemisnotover.Naturalgasnowaccountsfor7%ofIndia’stotalenergyconsumption,makingitthethird-mostconsumedfuelaftercoalandpetroleum.Thestrikingaspectofthisrankingisthespeedatwhichithasmovedtothethirdposition,andcloseto30percentofitisimported.Indiabeganto import natural gas from 2004 as an obvious substitute for costlier imported naptha and also for coal whose domestic supply was far below demand. International prices of natural gas were soft and expected toremainso.TheimportstoppedupdomesticproductionbyIndiancompanieslikeONGC,whichwasatthatstageflaringgas.Atthattime,thegovernmentencourageddownstreamcompaniestoswitchtonaturalgasasfeedstockbackedbycheapimportsandbyreportsthatRILhaddiscoveredsubstantialgas deposits.
Goingahead,domesticpriceswouldberevisedeverysixmonths.ButwithrisingdemandIndiahastorelyonAsian(andevencostlierAustralian)gas.Despitetheremovalofimportparitypricingfromtherecentpricerevision,thegulfinpricebetweendomesticandimportedpricesstillexist.Whowillpaythedifferencebetweenhigherimportpricesandthepriceofdomesticsupply?Willitbepassedontotheconsumers,andthestrategicallyandsociallyimportantpowerandfertilizersectorsinparticular?Thisissomethingwhichthecurrentreformshavenotbeenmadeclear,andwhichremainsadifficultquestionforgovernment to answer.
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