Bold move to scrap supply of kerosene

Except Tamil Nadu, no other state has lodged the complaint against the policy of the Centre to end PDS kerosene.

In December first week, the Union NDA government floated the idea of scrapping supply of kerosene through public distribution system (PDS). By any measure it is a momentous decision of far reaching importance. But it has failed to create any media headlines. Why?

Since the second world war, kerosene has been a controlled commodity. Kerosene has always been subsidised ever since the subsidy raj started soon after independence.

During the last nine years, the under- recoveries (losses) incurred by public sector oil companies to supply kerosene through PDS were Rs. 2,04,000 crore. How many schools, health clinics, roads, and such socially beneficial activities could have been developed with such an enormous amount?

About 40 per cent of the PDS largesse has been diverted to enrich mostly the politically connected kerosene dealers. This is achieved by either selling in black market or through more profitable adulteration of petroleum products like diesel and petrol. This has resulted in black money generation of about Rs 25,000 to Rs 30,000 crore annually.

It is not that the poor who depend on kerosene will not be helped in the future. Instead of PDS kerosene, they will be given subsidy through bank transfer to buy the needed quantity.

It has been found that those who have access to electricity do not need kerosene and also only 2 per cent or less use kerosene for cooking in rural areas while most use LPG in urban and semi-urban areas.

Except Tamil Nadu, no other state has lodged the complaint against the bold policy of Modi government to end PDS kerosene.  Tamil Nadu is a state where because of extensive electrification and also use of LPG for cooking the real need for kerosene has declined by more than 50 per cent.

Having realised this, the Central government has been reducing kerosene supply to the states.

Looks like in comparison to other states, TN might have perfected the art of diverting PDS kerosene. For that reason, both the ruling and the opposition parties have protested such a radical policy. 

Once the reality of the proposal sinks into politicians, expect aggressive protests throughout India.

There will be criticism of direct bank transfer: problem to identify poor, poor not having bank accounts, difficulty of computing subsidies when free market kerosene price ever changing, shops charging excessive amount to sell kerosene, husbands misusing subsidy amount to drink and women as a result suffering from not having kerosene etc.

In Mysuru,  at the suggestion of Mysuru Grahakara Parishat, an almost foolproof coupon system was implemented in the 1990s. That stopped diversion.

The poor were able to secure their quota of kerosene without waiting in long lines. But the politicians managed to kill such an innovative strategy. Unless the public are educated on the benefits of scrapping kerosene subsidy, even with the super majority, Modi government may be forced to drop this idea.

If the NDA government does succeed in ending the sale of kerosene through PDS and liberalise kerosene marketing, it will be the beginning of the end of mother of all corruption.

It will also be a fitting tribute the memory of S Manjunath, an employee of the Indian Oil Corporation who was brutally murdered on November 19, 2005 by the kerosene mafia as he exposed adulteration of petrol with kerosene. 

Reducing corruption
While NDA has taken this revolutionary step to plug the corruption in PDS kerosene, why is it taking only baby steps to reduce corruption in LPG distribution? The LPG subsidy burden was Rs 46,458 crore in 2013-14. How can a nation unable to allocate the needed funds to improve education and health sectors waste its resources by helping the middle class and rich by subsidising their LPG needs?

Limiting annual cylinder quota to 12 per family is a big joke when average consumption is less than 7 per family. Also, asking those who can afford to refute LPG subsidy is even a bigger joke. So far, out of 16 crore LPG consumers, only about 10,000 have rejected subsidy voluntarily.

With oil prices falling more than 50 per cent, the LPG subsidy cost has come down to an insignificant amount. This is a rare opportunity to the government to liberalise LPG market also and eliminate one more avenue of generating black money. As in the case of PDS kerosene, those poor who are dependent on LPG can always be given direct subsidy through banks.

Oil prices are unlikely to remain at this low level for long and LPG subsidy burden will increase in future. It was in 2002 that the then Vajpayee government dismantled unworkable Administrative Pricing Mechanism (APM) and gave freedom to oil companies to fix the prices. 

Unfortunately, it did not last long. When oil prices started to climb in 2004, the government started to control prices mostly driven by crass politics. By scrapping selling LPG at subsidised price, the Modi government can really usher in a new era of free market in petroleum. This is one sure way of reducing corruption which should be supported by all the political parties.