Although price deregulation of petrol and diesel, as suggested by the Kirit Parikh committee earlier this year, looks a difficult option, the Centre is all set to cut down on its kerosene allocation to states as advised by the panel.
The ministry of petroleum and natural gas, which last week launched a massive scheme to make domestic liquefied petroleum gas (LPG) available in rural areas through state-run fuel retailers, expects state governments to progressively reduce kerosene supply to families that get LPG connection, said a ministry official.
Besides checking the diversion of subsidised kerosene to adulterate diesel, the move will promote the use of cleaner fuel.
It is estimated that about 35% of the 11 million tonne subsidised kerosene supplied through the public distribution network every year is diverted for adulterating diesel, which would negate the huge investments going into producing Euro three and four versions of diesel engines.
?If states do not withdraw kerosene supply (up to ten litres a month) to the households that get LPG connection, we will reduce the allocation to the state concerned,? said the official, who asked not to be named.
The Rajiv Gandhi LPG Vitarak Yojana seeks to supply LPG to three-fifths of the rural folks by 2015. It will also make LPG available to three-fourths of the country in five years, and ensure that half of all the people in each of the 600 districts use the cleaner fuel. The rural LPG supply scheme, initially launched in Rajasthan, West Bengal, Madhya Pradesh, Bihar, Chhattisgarh and Jharkhand, will gradually be rolled out in the rest of the country.
The Kirit Parikh panel on sustainable pricing of petroleum products suggested that kerosene allocation should be cut down by 20% from current levels as more than half of the households in ten high-income states including Haryana, Maharashtra and Gujarat have stopped using kerosene since the beginning of the decade. About a fourth of households in 13 low-income states, including West Bengal, Arunachal Pradesh, Uttar Pradesh and Madhya Pradesh have also stopped using kerosene. But the actual reduction in kerosene allocation to states has only been 12.8%, much less than the estimated 32.6%, which shows the scope for a further 20% cut, the panel said. Rural electrification has helped in reducing kerosene use.
Besides, the under-recovery of oil retailers like IOC, BPCL and HPCL on kerosene has grown up more than six times from 3,751 crore in 2003-04 to Rs 28,225 crore in 2008-09. (Under recoveries are the notional losses incurred by selling fuel at government fixed price, excluding the subsidy to make up for part of this loss.) While reducing kerosene allocation may help in reducing the subsidy on that account, increased LPG use may lead to higher subsidy burden, unless subsidy delivery is targeted. However, subsidising a cleaner fuel is easier justified.
Officials said in the 2009-10 fiscal, oil marketing companies are expected to make under recoveries of about Rs 35,000 crore on account of selling kerosene and domestic LPG at government-set prices. The ministry has already approved a Rs 12,000 crore cash subsidy, while the petroleum ministry wants retailers to be fully compensated. This is in addition to the Rs 2,765 crore (revised) direct subsidy allowed in the 2009-10 budget. For the next fiscal, a direct subsidy of Rs 2,900 crore is provided in the Budget, which many believe have to be raised.