Reforming Kerosene Subsidies in India: Towards better alternatives

For the past 60 years kerosene in India has primarily been available as a subsidized commodity for households as an affordable cooking and illumination (lighting) fuel.

However, the subsidy program in its current form is marred by high levels of leakage in distribution. With efficient alternatives emerging to provide the end services being met by kerosene, continuing to subsidize it may not be the most efficient use of fiscal resources. This study aims to address the key question of how to best rationalize the kerosene subsidy to improve its effectiveness as well as provide the maximum benefit to the households using the fuel.

The report analyzes the current role and use of kerosene in Indian households, using National Sample Survey (NSS) data on consumer expenditure, Council on Energy, Environment and Water’s (CEEW’s) primary survey on energy access (ACCESS), and findings from field studies conducted in urban-poor sections of two cities, namely Kanpur and Bengaluru. It also analyzes the inefficiencies in the current delivery system and conducts an economic analysis of kerosene vis-à-vis alternatives.

The report finds that subsidizing kerosene fails to meet the objective of providing affordable cooking and lighting service to households. There is a clear case for alternatives to replace kerosene for its end services that could include any of the following: off-grid lighting, clean cooking provision or a direct benefit transfer for kerosene (DBT-K).