This factsheet provides key facts about India's fuel subsidies and a summary of policy recommendations for reform.

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.

India has historically subsidized energy with the objective of protecting its consumers from international price volatility and providing energy access for its citizens, especially the poor.

However, energy subsidies place a heavy burden on government budgets, while often failing to reach their targeted beneficiaries.This guide focuses on the scale and impacts of energy subsidies in India. In addition to forming a large part of government expenditure in India, subsidies for energy have a tremendous impact on the lives of citizens. At the most immediate level, these subsidies affect how much people pay for energy. However, digging deeper reveals that they have a profound effect on the environments in which people live and the economies in which they earn their living.

Steel is an essential sector if we are to control global CO₂ emissions. Both the negotiating process and the proposals being made require further development.

Existing national policies should be the essential building blocks of sectoral approaches, agreements and mechanisms. International agreement is needed to ensure adequate levels of ambition to curb rising emissions in the steel sector, notably to assail competitiveness fears.The United Nations Framework Convention on Climate Change (UNFCCC) is still an essential element for developing sectoral approaches, agreements and mechanisms. It could host a steel-specific negotiation forum with government and industry representation and with sufficient technical expertise to be able to assess the level of commitment that individual countries are making and to investigate potential international agreements.

The paper gives an overview of the fair and equitable treatment (FET) provision in Indian International Investment Agreements (IIAs).

It examines 68 Indian IIAs signed by India from 1995 to 2010, and the Indian model IIA, and looks at the differences with regard to FET provision and its normative content. Furthermore, it analyzes those Indian IIAs containing the FET provision with regard to their compliance with the model Indian IIA, and points out possible trends in the formulation of the FET provision in Indian IIAs.

The second report in GSI's series measuring irrigation subsidies provides the starting point for a debate on the use of irrigation subsidies in India.

Subsidies to irrigated agriculture in major irrigation projects in just the four south Indian states (Tamil Nadu, Andhra Pradesh, Karnataka and Kerala) were conservatively estimated at US$575 million per year from 2004 to 2008.

The full subsidy is certainly substantially more, as significant numbers of small- to medium-size schemes were not included in the study, nor were substantial electricity subsidies to private groundwater irrigators. The majority of the subsidies were for interest on capital, and operation and maintenance (O&M) costs, over and above the revenue generated from providing irrigation services, hydro power generation and pollution abatement fees. Irrigation projects that were not completed to schedule were found to have significant cost overruns leading to government funding tied up in projects not delivering any benefits or revenue. When governments were unable to collect revenue from farmers, re-investment back into completed systems stopped and system maintenance declined. Collecting basic data for the study was a challenge. Government-funded supply costs were not recorded and compiled with the notion of generating accurate cost estimates for irrigation activities. What data are available are often spread over a variety of government departments. The study recommended that the government encourage water authorities to maintain better records and publicly provide information on water costs, revenues and subsidies, in a more organized and accessible manner. There may be clear public policy reasons for providing subsidies. However, without accurate information on subsidy volumes, public policy debate is hampered and the relative costs and benefits of alternative paths to policy goals impossible to assess.