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Dual pricing for kerosene likely

The Govt may soon bring changes to limit sale of cheap kerosene only to BPL families, a move that could help cut subsidy on the fuel by 40 per cent. A report by Deepak Joshi and Gaurav Choudhury.

business Updated: Jan 28, 2008 22:56 IST

The government may soon bring changes to limit sale of cheap kerosene only to families counted as living below the poverty line, a move that could help cut subsidy on the poor man’s cooking fuel by at least 40 per cent.

Fair price shops will continue to sell kerosene to others, but at a market-determined price, a government official said on the condition of anonymity.

The move follows recommendations of a working group set up by the Planning Commission, which recently submitted its report. Previously, a committee headed by C Rangarajan, chairman of the Prime Minister’s advisory council, also pushed for similar changes.

“The government has, in principle, accepted the recommendations,” the official said. Modalities are being worked out, he said.

The official said Planning Commission’s BPL household estimates, which count 22 percent of the country’s population as poor, would be used to calculate the subsidy bill.

Kerosene is currently sold at a little over Rs 9 per litre through the public distribution system. Sales through the PDS currently total about 12.07 million kilo litres a year.

Separate figures for subsidy on kerosene were not immediately available. The government combines the subsidy on kerosene with that of LPG and that number is projected to touch Rs 2,650 crore in 2007-08, according to budget estimates. In addition, state-run oil marketing companies have also been losing over Rs 30,000 crore annually for selling these two cooking fuels at low prices.

Part of the loss of oil companies, often referred to as under-recoveries, is borne out by the government through issue of long term bonds to these companies.

“Kerosene subsidy, after it is targetted to BPL families, could be directly met from the Union Budget in a transparent manner,” said the report by the Planning Commission Working Group.

Petroleum Secretary MS Srinivasan headed the group. The report said that the only fool proof mechanism for preventing leakage and diversion is to move towards a system of single price at the point of sale by oil companies to the wholesale dealer with the subsidy being passed on to the eligible poor households directly.

In order to get a reasonably-priced alternative to subsidised kerosene for those who are not counted as poor, oil marketing companies are considering the sale of “non-PDS” kerosene in one-litre bottles, a petroleum ministry official said.

For this purpose, he said, the Finance Ministry has been approached to eliminate excise and customs duties on kerosene.