Chanakya IAS Academy Blog


Relevance and use of the article in UPSC prelims and mains examination:Dear aspirants, here is an issue related to rationalization of subsidies. Please put it on the parameters of social justice, inequality,environment and economy and analyse the things accordingly. Providing subsidy on kerosene is relevant in an era but now the time had changed. There are many new sources of energy and lightning coming up. And as we look at kerosene it both emits great pollution put a huge burden on government exchequer.there are many other issues which need to be addressed by the government to rationalize the things.


  • Clean energy access is a high priority for India, we must look beyond kerosene, ensuring alternatives.Oil minister expects kerosene subsidy to fall this year with increased supply of cooking gas and rural electrification. The drop in the consumption of a sooty, polluting fuel is happy news. But the leaky subsidy regime needs rigorous reform.

Problems/hurdles associated with kerosene subsidy:

  • Subsidised kerosene sells at a huge discount to the market price. It is largely diverted to adulterate petrol and diesel, which damages engines and intensifies pollution. The dual pricing of kerosene should end. The use of Aadhaar-seeded bank accounts to transfer the subsidy to all poor households, akin to that for cooking gas, makes eminent sense. It will exorcise ghost subscribers and allow the government to scrap product subsidy, with its inherent potential for diversion and other misuse. Actually, with electricity and cooking gas reaching many more households, much more subsidised kerosene will be used to adulterate petrol and diesel.
  • After the success of Direct Benefit Transfer (DBT) for liquefied petroleum gas (LPG)/cooking gas, the government has now decided to launch DBT for kerosene (DBTK).
  • The biggest hurdle is the lack of a streamlined and unified digital consumer database, which formed the backbone of the robust and rapid implementation of DBT for LPG.
  • The second hurdle is the political economy associated with subsidised kerosene. While the Centre burns the fiscal impact of subsidy, the States determine who gets the subsidy and to what extent in terms of the quantum of subsidised kerosene

Issue of diversion:

  • A major drawback is the limited ability of DBTK to reduce incentives for diversion. Currently, subsidised kerosene is mainly diverted as a substitute or as an adulterant to diesel. Given the significant Central excise and State taxes on diesel, its market price remains much higher than the unsubsidised price of kerosene.
  • Another challenge is in ensuring that the subsidy is accessible to its major beneficiaries — poor households. The Pradhan Mantri Jan-Dhan Yojana (PMJDY) has succeeded in providing bank accounts to a substantial number of households, accessing the subsidy amount is still not easy for several poorer households, who may, at times, lose their potential day wage in withdrawing this subsidy from far-located bank branches.

What needs to be done:

  • Subsidised kerosene should be substituted with solar lanterns to cut pollution. It also cuts costs, given that there are no recurring expenses in solar lamps.The Centre’s scheme for subsidising solar products is fettered by the reluctance of companies to go through the complex procedure of getting reimbursements from the government. The answer is to use Aadhaar-seeded bank accounts for subsidy disbursement. Solar power should be funded with resolve to boost local manufacture of solar panels, LEDs and batteries.
  • Of the Centre’s petroleum subsidy of Rs 26,947 crore for this fiscal year, kerosene accounts for Rs 7,144 crore and cooking gas Rs 19,802 crore. A reduction in kerosene supply, coupled with small increases in retail prices, is expected to lower kerosene subsidy by 25% this year.

Promoting alternative fuels

  • kerosene is predominantly used as a lighting fuel in rural India, with less than 1 per cent of households using it as a primary cooking fuel. In urban-poor households, it is used for both lighting and cooking.
  • shifting from kerosene to alternatives such as solar-assisted solutions for lighting and LPG for cooking could be economically beneficial for both the government as well as households. The shift would provide households with much better end-services and avoiding the adverse health impacts associated with kerosene use.
  • As LPG is a clean and efficient fuel, it is rational to continue subsidising it for the underprivileged who cannot afford it otherwise. However, with energy security and clean energy access high on India’s priorities.


  • The Centre needs to phase out the subsidy on cooking gas as well for everyone except the poor. A proactive policy to phase out kerosene subsidies and to rationalise taxes by removing the special excise duty on petrol will bring diesel, petrol and kerosene prices close to one another. The larger point is to end the long era of distorted petroleum pricing.
  • it is important to devise a more pragmatic and sustainable solution to reform kerosene subsidy, improving both the welfare of poor beneficiaries as well as the effectiveness of the fiscal expenditure and, eventually, the subsidy tap turned off.

Practice Question:

“Subsidies and Freebies is common practice in mixed economy but technological advancement and innovations lead for a easier life. In indian context subsidies are incorporated in political economy of our system one hand it is a big burden on exchequer and develop a system called black economy”.Place your views to overcome this problem and also suggest measures to rationalize the subsidies.

Suggested answer:

  • Discuss about the subsidy system of India.
  • Problems associated with the system.
  • Connection of subsidy and politics.
  • Environmental issues related to this.
  • Rationalization of subsidies.
  • Suggested measures.
  • conclusion.



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Read 1276 times Last modified on Monday, 17 October 2016 10:50

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