Every family below poverty line may get over Rs 400 per month from the government from April next year in lieu of fuel subsidy for kerosene and liquefied petroleum gas cylinders as part of India's first direct cash transfer scheme.
The move, which is expected to be considered by Empowered Group of Ministers (EGoM) on June 9, is aimed at checking use of kerosene for fuel adulteration and reduce financial loss to fuel companies.
If new methodology if accepted by the government will benefit around 40 crore poor Indians as per latest poverty figure of 37.2 % of India being below poverty line.
The fuel subsidy burden on the Centre in 2010-11 was Rs38,336 crore in the last financial year, of which about Rs16,000 crore was meant for providing kerosene at subsidised rates to the poor. In this budget, the total petroleum subsidy is Rs 23,640 crore.
Till now, the government had to bear a cost of Rs28 per litre to provide kerosene at highly subsidised rate of Rs 12 per litre and over Rs 150 for a LPG cylinder. The low cost meant incentive to sell kerosene for adulteration of petrol, whose market price is Rs 63 per litre.
"As the product will move in the entire distribution chain at full price, there will be no incentive left for diversion of kerosene," says a proposal mooted for empowered group of ministers (EGoM) headed by finance minister of Pranab Mukerjee. A similar proposal mooted for LPG cylinders said "It will ensure that universal and unlimited subsidy regime is replaced with equal entitlement for everyone".
The government intends to introduce the new regime from April 2012 and sought the EGoMs approval. The oil ministry has also sought financial incentives for the states to set up an institutional mechanism to undertake transfer of cash subsidy before end of March 2012, the proposal says.
Once the new regime is introduced, a below poverty line (BPL) family will get approximately Rs 300 per month on a smart card to be registered in name of a household woman for kerosene and another Rs 100 for LPG cylinder.
Kerosene and LPG cyslinders will be available at the market rate and the poor will get it at the existing subsidised price after the money will be deducted from their smart card. The monthly kerosene quota ranges between 10-14 litres per family in different states.
The work for introducing the regime has already started in states such as Haryana and Andhra Pradesh, where smart cards have been introduced for availing subsidised goods from the fair price shops. "These smart cards will have Aadhaar numbers to prevent any leakages," as official said.
After kerosene and LPG, the government plans to introduce direct cash transfer of subsidy for food grains available under the public distribution system. A committee headed by plan panel deputy chairperson Montek Singh Ahluwalia has already submitted report recommending the mechanism for direct cash transfer to the poor, similar to the one for kerosene.