3 kg LPG? Government mulls ways to trim subsidy | business | Hindustan Times
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3 kg LPG? Government mulls ways to trim subsidy

business Updated: Jul 21, 2010 02:02 IST
Anupama Airy
Anupama Airy
Hindustan Times
annual subsidy bill

The Centre, stuck with an annual subsidy bill on kerosene for the poor running as high as Rs. 16,000 crore, is mulling novel ways to trim its expenditure to curb the fiscal deficit. The latest on the table is a programme that aims to migrate kerosene users to cooking gas by packing the gas in affordable cylinders.

The formula works on a simple principle: the poor often use kerosene because they can't dish out at one go the amount needed to buy a large gas cylinder. By pushing affordable cylinders, can save money because the subsidy saving on kerosene is higher than on liquefied petroleum gas (LPG).

At current prices, the subsidy on kerosene for the public distribution system, in terms of energy equivalent, is estimated at Rs.21.82 per kg, as against Rs. 15.80 per kg for LPG sold in the domestic market.

The government has been inspired by the "Zero Kero" (short for zero kerosene) programme launched by Indonesia in 2007 that involves the conversion of all kerosene user households to LPG.

Under the programme, the Indonesian government has introduced subsidised 3 kg LPG cylinders for households. But this saves subsidies elsewhere.

"The low-income families were given the cylinder and the stove free of cost. Between 2007 and February 2010, the net subsidy savings of the government reached nearly $1.5 billion (after netting out the cost of cylinder and stove)," said a senior petroleum ministry official, who asked not to be identified.

In both India and Indonesia, state-run refiners control market prices, working in closer coordination with the government.

The official said the Indonesian model is being studied because of its similarity with India.

"Using LPG over kerosene will also provide clean, convenient and environment-friendly fuel to households besides containing the rising kerosene subsidy," the official said.

Increasing the price of kerosene has always been a politically sensitive task for the government. Even after the recent price hike in kerosene, the annual subsidy bill on kerosene comes to $3.5 billion (Rs 16,000 crore).

Until last month, kerosene was sold in India at Rs 9.36 per litre, a price that had not been revised since 2002. Despite the eight-year lag, the price hike resulted in political protests against the UPA coalition.

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