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Press Release: Government's Energy Subsidy Reforms Focused on Deserving and Poor - Dharmendra Pradhan
4 May 2016

“My government is focused on transferring subsidies to the deserving and poor households to get access to modern energy. In order to enable this, we have created the largest direct benefit transfer mechanism for LPG subsidies (DBTL) in the world, making India a leading example for other developing countries in Africa and the SAARC region. To prevent diversion of subsidies, we have leveraged the use of technology and data. We have also recently launched the Ujjwala scheme, which will not only provide clean cooking fuel to rural households but also reduce the impact of indoor pollution on women. My Ministry had requested CEEW to independently and objectively analyse our reform measures and I am thankful to them for their analysis. CEEW’s research would help us improve our government’s schemes,” said Hon’ble Minister of State (Independent Charge) for Petroleum and Natural Gas, Shri Dharmendra Pradhan, at a conference on energy subsidies organised today by the Council on Energy, Environment and Water (CEEW) and the International Institute for Sustainable Development (IISD). Minister Pradhan also released two CEEW studies: on reforming kerosene subsidies, and an evaluation of the Direct Benefit Transfer Scheme for LPG (DBTL).

India has a mammoth 164 million active LPG connections. However, well-to-do households remain the primary beneficiaries, with 40% of the LPG subsidy benefitting the richest 20%. Over the past year, the government has initiated reforms such as the ‘Give it Up’ campaign (nudging the well off to voluntarily surrender their subsidy claims) and DBTL, the world’s largest cash transfer scheme. The aim has been to improve the targeting of subsidies and reduce leakages.

CEEW evaluated how DBTL had performed across Gujarat, Haryana and Kerala and found that the scheme’s implementation was fairly successful with high levels of enrollment and customer satisfaction. Also, 85% of the distributors surveyed reported significant impact of the scheme on controlling both the diversion of cylinders and the multiple connections.

Dr Arunabha Ghosh, CEO, CEEW, said, “DBTL has been a successful venture, combining technology, financial inclusion and political will to better target subsidies to the deserving yet underserved poor. Yet, as LPG penetration in rural areas increases, a sustained effort is required to improve access to banking services and providing real-time information regarding subsidy disbursal to the consumers.”

The government has earmarked INR 8,000 crore (USD 1.2 billion) for the Ujjwala scheme, which will be partly funded from the monies saved from the one crore (10 million) cooking gas users who have given up their LPG subsidy.

In addition to LPG, kerosene is another major subsidised fuel in India. However, the kerosene subsidy in its current form is highly inefficient. CEEW analysis finds that only 49% of the kerosene under the public distribution system (PDS) actually reaches the households at a subsidised price. About 34% of the allocated kerosene never reaches the intended households. According to the Economic Survey of India 2014-15, leakage in kerosene subsidies cost the exchequer USD 1.5 billion. CEEW’s study further finds that, even at subsidised prices, rural households spend INR 50-120 per month to meet their lighting needs from kerosene. Urban households using kerosene for cooking spend anywhere between INR 400 and INR 800 per month, with expenditure crossing INR 1,500 per month in some cases.

Mr Abhishek Jain, lead author of the two reports, said, “Kerosene is not only inefficient at meeting the lighting and cooking requirements of Indian households but also poses a major health risk, especially to women and children. CEEW analysis finds that a transition to alternatives such as grid electricity, solar lanterns, solar home systems, micro grids, and LPG could accrue an annual net savings worth INR 8,000-12,000 crore over the lifetime of the alternative. While alternatives are economically viable, several challenges related to financing, service reliability, universal coverage, access, safety and cash flow need to be resolved to effectively enable such a transition.”

Other distinguished speakers at the conference included Prof Sudipto Mundle (Emeritus Professor, National Institute of Public Finance and Policy), Mr Ashutosh Jindal (Joint Secretary, Ministry of Petroleum and Natural Gas), Mr Ashok K Bhattacharya (Editor, Business Standard), and Ms Sudha Mahalingam (Former Member, NSAB and PNGRB).

Link to Report ‘Reforming Kerosene Subsidies in India: Towards Better Alternatives’: http://bit.ly/1NUjtya Link to Report ‘DBTL Performance Evaluation: Insights from the World's Largest Subsidy Benefit Transfer Scheme’: http://bit.ly/1SMtIl4

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CEEW’s Fact of the day...
In India, around 74 million rural households lack access to modern lighting services and a larger proportion of the population (around 840 million) continue to be dependent on traditional biomass energy sources
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