Reforming kerosene subsidies in India: towards better alternatives

Kerosene in India is primarily available as a subsidized commodity for household use, and was added to the basket of Public Distribution System (PDS) commodities during the 2nd Five Year Plan (FYP). Kerosene has been continued as a subsidised fuel to provide affordable cooking and illumination (lighting) to households for the last 60 years. However, the subsidy program in its current form is marred by high levels of leakage in the distribution of subsidized kerosene. 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 the government effectiveness as well as provide the maximum benefit to the households spending on the fuel.