This paper analyzes the Direct Benefit Transfer (DBT) for liquefied petroleum gas (LPG) in Mysore, India.

The DBT is an initiative of the Indian central government to develop an electronic payment system for centrally funded social protection schemes. Under the DBT-for-LPG subsidies (DBTL), households would order an LPG cylinder from their LPG distributor, receive a payment equivalent to the current subsidy amount via electronic transfer to their bank account, then pay the full (unsubsidized) market price for the cylinder in cash on delivery. Mysore, a district in Karnataka state, was selected as one of 20 pilot districts for the introduction of DBTL. In early October 2013, the GSI conducted structured interviews with 120 beneficiaries in five taluks (administrative sub-divisions) of Mysore district to assess the DBTL in the areas of subsidy qualification and receipt, access to the LPG subsidy and impacts on household behaviour.

Over 40 per cent of households in India have no access to modern lighting fuels.

With electrification yet to reach every village, kerosene is a major source of lighting for these households. It is provided at subsidized rates through the government-sponsored Public Distribution System (PDS). Yet the sale of kerosene at subsidized rates leads to high costs for the government and oil companies. In December 2011, the Government of Rajasthan, with support from the Central Government, launched a pilot scheme in Kotkasim, Alwar to test a system of direct transfers to the bank accounts of ration cardholders as a means of distributing PDS kerosene subsidies. Under the scheme, every ration cardholder is allocated 3 litres of kerosene per month at the market rate (which equals the depot rate plus state-level taxes). The subsidy amount (as determined by the state authorities) is then transferred to the bank accounts of the ration cardholder on a quarterly or monthly basis. This study was undertaken to assess and evaluate the pilot project in Kotkasim with a focus on answering the following issues: how the pilot project performed against its stated policy objectives; how the pilot project impacted kerosene-consuming households, including their ability to access the subsidy and effects on household expenditure; and the policy implications for the reform of the kerosene subsidy system more generally.

Green industrial policy (GIP) is the pursuit by governments of national economic excellence in key green economy sectors, with a view to creating globally competitive domestic firms.

It differs in only a few respects from traditional industrial policy, most significantly in regards to the potential global environmental benefit that comes from private sector innovation and competition in these areas.

GIP is increasingly used by governments in both developed and developing countries, a trend that is likely to be reinforced in coming years by the desire to capture the environmental and economic benefits of green economy sectors.  However, as with traditional industrial policy, it is easy to implement policies that undermine rather than support the intended goals.

This report is one in a series that considers the lessons for GIP that can be learned from policies in the renewable energy sector.  The aim of the series is to provide policy-makers with research to support the development of cost-effective, well-targeted policies for the development of green industries.  The reports highlight how policies have worked, the outcomes of the policies and the lessons that have been learned.

This report focuses on the wind and solar sectors in India.  It reviews Indian policies for raising the share of renewables in the energy mix within the context of multiple social, economic and technological objectives.  Based on this analysis, the report concludes that “green” rather than “industrial” elements have been best supported by policy to date.  Impacts are most clearly seen in energy security and access, avoided health costs and abatement of GHG emissions, while the industrial policy element has fared poorly in comparison.  Marrying the two elements more completely will allow the benefits of a renewable energy manufacturing sector and environmental protection to be successfully realized.

View the other paper in this series, Stable Policies – Turbulent Markets The costs and benefits of promoting solar PV and wind energy.

Fuel subsidies are a significant fiscal burden in India, costing on average 1.4 per cent of GDP since fiscal year 2008.

This paper provides a concise overview of subsidies for liquefied petroleum gas (LPG), which is widely used as a cooking fuel, particularly in urban areas. The paper also describes recent reforms to LPG subsidies and the impacts of those reforms on consumption, subsidy expenditure and distribution and targeting.

This is the first edition of the India Energy Subsidy Review, a biannual publication of the IISD's Global Subsidies Initiative.

Part One outlines economic and policy developments affecting India's subsidized key fuel markets (diesel, liquefied petroleum gas, kerosene and natural gas), and analyses the dynamics of each market. Part Two features analysis by guest authors on issues related to energy pricing policy. In this edition, two articles examine the impact of energy subsidy reforms on India's transport and agriculture sectors respectively. This edition of the review concludes with a commentary by Kirit Parikh and Jyoti Parikh, distinguished practitioners in the field.

Fossil-fuel subsidies are significant drain on public finances.

They are also bad for the environment, while benefitting higher income consumers more than poorer ones. This comic book provides an accessible and fun introduction to fossil-fuel subsidies in India. It details how the subsidies work, their impacts on people and the economy, and what the Indian government is doing to change these policies.

This report debates the extent to which public-private partnerships (PPPs) are delivering value for money (VFM) in India.

While VfM is traditionally interpreted to mean the lowest-priced alternative at the time of commissioning, in the context of sustainable development it is understood as value for money across the asset life cycle. This approach embodies the principles of "total cost of ownership" and "whole-life value"—accounting for the costs of planning, designing, building, operating and maintaining an asset. It can therefore be used to account for the medium- and long-term efficiency gains and cost reductions enabled by sustainable infrastructure.

Our findings indicate that despite the best-in-class laws, policies, formal processes and institutional frameworks, PPPs in India might not be delivering VfM across asset life cycles. We make policy recommendations on how to improve the existing safeguards, on how to move beyond the existing safeguards, and on leveraging existing infrastructure development funds so as to lower the cost of capital for sustainable infrastructure.

In the fiscal year 2011-12, under-recoveries incurred by Indian oil-marketing companies for diesel rose to an all-time high of US$15 billion.

Diesel constitutes 38 per cent of all petroleum products consumed in India, some 65 per cent of which are used in transportation activities.

While a reduction in diesel under-recoveries will have significant fiscal and economic benefits for the economy as a whole, rising diesel prices will negatively impact industry and diesel-intensive sectors. Earlier research by Integrated Research and Actionfor Development (IRADe) established that farmers and truck operators are among the most vulnerable to increases in diesel prices. A subsequent study by IRADe addressed two important questions:

1. What factors make the trucking industry vulnerable to diesel price increases?
2. What measures could be taken to reduce the vulnerability of the trucking industry to diesel price increases?

That study included consultations with the operators of small, medium and large truck operators. The study focused on three aspects in particular: factors responsible for high diesel consumption and wastage in the Indian trucking industry; present and possible future impacts of diesel price increases on the industry; and measures that would reduce the impact of higher prices on the viability of their businesses. This policy brief summarizes the main findings of that study, and elaborates on policy measures to improve the trucking industry's resilience in the face of higher fuel prices.

In 2011-2012, the Government of India spent over USD$15 billion subsidizing fuel products such as diesel, kerosene and liquid petroleum gas.

The government's total subsidy expenditure increased by 27 per cent from the previous year, significantly contributing to the deterioration of India's fiscal balance. In addition, national oil companies incurred over USD$10 billion worth of under-recoveries as a result of having to sell fuel at below-market prices.

In early 2012, the government initiated reforms to gradually raise the diesel price until it is aligned with market rates. This research report by the IISD's Global Subsidies Initiative (GSI) and the Delhi-based Integrated Research and Action for Development (IRADe), analyzes the vulnerability of India's trucking industry to the diesel price reforms and provides policy recommendations for minimizing the negative impacts.

This policy brief summarizes two research papers on fossil-fuel subsidy reform in India and highlights the key policy recommendations.

The Government of India spent over US$ 9 billion subsidizing fuel products - diesel, kerosene, LPG and, to a lesser extent, gasoline - in 2010-11. The Government's total subsidy expenditure (including for food and fertilizer) increased by nearly 27% in 2011-12, significantly contributing to the deterioration of India's fiscal balance. In addition, national oil companies incurred over US$ 8 billion worth of under-recoveries.

The Government has announced its goal of reducing total subsidy expenditure to 2% of GDP in 2012-13, with further reductions down to 1.75% in following years. Yet reform has been hampered by legitimate concerns over how higher fuel prices will affect the broader economy—potentially disrupting key sectors like transport, industry and agriculture—and the ability of poor citizens to cope with higher prices.

The International Institute for Sustainable Development's Global Subsidies Initiative (GSI), in collaboration with Delhi-based research institutes the National Institute for Public Finance and Policy (NIPFP) and The Energy Resource Institute (TERI), have evaluated the impacts of phasing out diesel, LPG and PDS kerosene subsidies and examined cash-transfer schemes as a means to support poor citizens transition to higher fuel prices.

The research comprises the following reports:

1. Diesel Pricing in India: Entangled in a Policy Maze (PDF - 1.22 MB), published by NIPFP, analyzes the inflationary impacts of increasing diesel prices on the economy and on key groups. It provides recommendations and actions on how pricing mechanisms and taxation could be changed.
2. Fossil-Fuel Subsidy Reform in India: Cash transfers for PDS kerosene and Domestic LPG (PDF - 1.62 MB), authored by TERI, provides recommendations for designing and implementing direct cash transfers in India. (To be published on 21 August 2012)
3. India's Fuel Subsidies: Policy Recommendations for Reform (PDF - 744 KB) , authored by IISD, summarizes the research from the previous two reports, and highlights the key policy recommendations. (To be published on 21 August 2012)

In addition, the IISD has produced a 6-page Questions and Answers document that distils the key findings and recommendations, available here (PDF - 338 KB).

For more background information about India's energy subsidies, see:

A Citizens' Guide to Energy Subsidies in India

The views expressed in these reports do not necessarily reflect those of the GSI's funders, nor should they be attributed to them.