The government would take a call on the proposal to target the subsidy on kerosene at the really poor only after the Kirit Parikh committee?s views on this are known, senior petroleum ministry officials said. If the panel?s recommendations don?t come soon enough for the government to finalise the policy before the end of this fiscal, it would then extend the existing scheme for PDS kerosene for another year or so, the sources added.
Prime Minister Manmohan Singh has reportedly convened a meeting on January 13 with finance minister Pranab Mukherjee, petroleum minister Murli Deora, Parikh and the chiefs of state-owned oil companies to deliberate on major issues in the sector, in which subsidies and free-market pricing of auto and domestic fuels are expected to be discussed.
The officials said that in the whole of financial year 2009-10, oil marketing companies are estimated to make ?under recoveries? of about Rs 35,000 crore on account of selling kerosene and domestic cooking gas–liquefied petroleum gas?at government-set prices. The ministry has already asked the finance ministry to compensate state-run oil marketing firms for their Rs 20,000 crore under-recoveries. This is in addition to the Rs 2,840 crore the government allocated in the 2009-10 budget as direct subsidy to companies to sell kerosene and LPG cheap.
The finance ministry did not incorporate this in the first demand for extra-budgetary spending for which it sought Parliament?s nod this winter, but has not ruled out accepting it later. In fact, finance secretary Ashok Chawla even hinted at compensating oil marketing firms with cash in the forthcoming budget instead of issuing oil bonds, which they sell in the market. That is part of a plan to bring more openness into government?s account book.
In the meantime, to reform the efficiency-causing subsidy regime, the petroleum ministry is implementing a smart card system in select cities on a pilot basis, Pune being one of them. It might take some time to replicate the system in the entire country, the sources admitted.
The government wants to reduce subsidies as a large part of it is not reaching the intended beneficiaries. A study by the National Council of Applied Economic Research (NCAER) assigned by the petroleum ministry had earlier said that more than a third of the 11 million tonne a year kerosene sold cheaper through the public distribution network is diverted. Nearly half of the diverted kerosene is used to adulterate diesel, the study had said. Reducing subsidy is expected to bring discipline among consumers and reduce the burden on the current government as well as on the future generation which has to repay the money borrowed now to sell these fuels cheape.