Topic:

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), starting with pilots in the State of Jharkhand.

Challenges before implementation:

The lack of a streamlined and unified digital consumer database

• In comparison, the database of subsidised kerosene beneficiaries falls under the Public Distribution System (PDS), which is managed and maintained by each State government.
• Coordination among the large number of State-level actors, especially in the case of a non-digitised PDS beneficiary database, can create barriers.
• While e-PDS is being implemented across India, a digital PDS beneficiary database is not yet available for all the States to enable implementation of DBTK.

The political economy associated with subsidised kerosene

• Centre-State While 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. This is an important political currency for State governments.
• Thus, political alignment of States to buy into the idea of DBTK is critical in ensuring effective implementation of the scheme.

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.
• Analysis by the Council on Energy, Environment and Water (CEEW) shows that unless the government restructures the market price of kerosene, the price differential between unsubsidised kerosene and diesel varying across States. 

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.
• While the pilots will provide valuable insights to the government in assessing DBTK’s impact on kerosene diversion and on households, 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.

Alternative fuels:

• A recent report by the CEEW shows how 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, we must look beyond kerosene to provide cooking and lighting solutions to poor households, while ensuring affordability, reliability and universal availability of these alternatives.
• The government has been persistently focussing on structural reforms in various sectors of the economy, and moving away from subsidised kerosene, and envisioning a kerosene-free India would be one such visionary step.

Source: The Hindu