Kerosene Consumption in India: Welfare and Environmental Issues

The adverse fiscal effects of fuel subsidies in developing countries like India are well documented. More recently, few studies have highlighted the fiscal, welfare and environmental effects of possible removal of subsidies on fuels in general. In the Indian context the leakages and errors of targeting, especially in case of kerosene supplied through public distribution system (PDS) have also been discussed widely in the literature. Using the National Sample Survey data for two recent rounds corresponding to the years 2009-10 and 2011-12, the present study explores the welfare and environmental implications of decline in the provision of kerosene through PDS. Focusing on kerosene used by the households for cooking purposes, the paper argues that kerosene has significant role in the household energy-mix and it helps in reducing the indoor air pollution. The study further highlights that the kerosene targeting has improved in recent years, that the subsidies have been progressive across geographical zones and sectors, and that economically and socially weaker groups of the society benefit more through implicit transfers associated with kerosene subsidies. While efforts to minimize and eliminate the diversion of kerosene to alternate markets including transport sector must continue, the phasing out of kerosene should be carried out gradually and cautiously to reduce adverse fallouts such as households moving down the energy ladder to use inferior fuels like dung and agricultural residue.