Government should abolish subsidies on LPG and kerosene

Vol 4, PW 4 (29 Mar 00) People & Policy

Months of 'Will they, Won't they' speculation ended 22nd March when the India cabinet finally mustered up the courage to raise the retail price of three oil products: kerosene, liquefied petroleum gas (LPG), and aviation turbine fuel (ATF).

The government, not the market, sets the price of these products - like diesel and petrol. Kerosene prices were on average doubled (see table) while those of LPG rose by an average 30%.

Reason for the hike: to save Rs5,300cr ($1.2bn) in annual subsidies. Long overdue, the price hike has sparked a political crisis, exposing sharp divisions in the Indian cabinet, with four coalition partners fiercely opposing the move .

To his credit, oil minister Ram Naik refuses to 'roll back' the price hike. Private sector LPG distributors (foreign and Indian) have reason to cheer.

By making government-produced LPG more expensive, Naik is helping private LPG retailers like Shri Shakti of India, Caltex of the US, Elf of France and SHV Holdings of Holland. They sell LPG at slightly more expensive market rates, and complain of unfair competition from subsidised LPG produced by the likes of Indian Oil Corporation.

Rightly so. LPG is the cooking fuel of India's wealthy middle class.

It does not deserve a subsidy. Subsidies on kerosene ( "poor man's cooking fuel") are a trickier issue.

In a country, where half the population lives in poverty, no one has the courage to suggest they should be abolished. Kerosene (per litre) LPG (per cylinder) ATF (per kilolitre) Old New Old New Old New Delhi Rs2.67 Rs5.46 Rs151.6 Rs196.95 Rs14.54 Rs17.19 Mumbai Rs2.75 Rs5.57 Rs153.2 Rs198.80 Rs15.35 Rs18.23 Calcutta Rs3.00 Rs5.87 Rs170.2 Rs221.45 Rs15.72 Rs18.78 Chennai Rs2.80 Rs5.64 Rs155.35 Rs202.25 Rs15.41 Rs18.44