Energy Subsidies in India

The Global Subsidy Initiative's India country program undertakes research and policy engagement on energy subsidies for fuel consumers, fuel producers and renewable energy, with the intention of contributing to the following policy objectives:

  • Reduce overall fossil fuel subsidy expenditure
  • Improve the progressive social distribution of subsidy expenditure
  • Increase clean energy access and use, particularly among poorer households

As part of its on-going program of research and policy engagement in support of subsidy reform, the GSI has released the following reports and research notes on India:

 

November 2016

Estimating the Impact of Price Reforms on Kerosene Subsidy Expenditure in India (198.44 KB)

India is one of the world's largest users of kerosene, most of which is provided at highly subsidized prices and at significant fiscal cost to poor households through the national Public Distribution System. This short report examines subsidized kerosene consumption data to determine the fiscal impact of this process of price revision.

How to Pay the Bills? A survey of public attitudes to electricity tariff reform in Rajasthan (6.78 MB)

Electricity distribution utilities in India are currently unable to cover the cost of their operations from the sale of electricity. This report presents the findings of a household survey that sheds light on the awareness and views of different socioeconomic and geographical groups regarding electricity subsidies and electricity tariff reform.

 

August 2016

An Assessment of the Financial Sustainability of the Electricity Sector in Rajasthan (PDF – 6.67 MB)
This report examines the performance of the electricity sector in Rajasthan, assessing its ability to recover operating costs, reliably meet demand, make investments and operate according to environmental and social norms.

 

July 2016

How Subsidies for Kerosene are Holding Back Solar Power in India 
Kerosene is used by millions of households in rural India to meet basic lighting needs, and subsidies have long been used to make the fuel more affordable. But for health, safety and environmental reasons, a switch to solar power is better—and more affordable in the absence of kerosene subsidies.

 

May 2016

Providing Clean Cooking Fuel in India: Challenges and solutions (PDF – 1.7 MB)
This study, authored by Integrated Research and Action for Development (IRADe), assesses the current status and challenges to extension of access to clean cooking fuel in urban India through a case study of Ghaziabad district in Uttar Pradesh. Based on extensive fieldwork (including a household survey of 250 households), the report analyzes patterns of clean cooking fuel access and use, household energy expenditure and the relationship of clean cooking fuel access to gender relations and outcomes.

Reforming Kerosene Subsidies in India: Towards better alternatives (PDF – 1.8 MB)
This study, authored by the Council on Energy, Environment and Water (CEEW), assesses options for the reform of the kerosene subsidy system. Using household survey data, it analyzes current kerosene consumption patterns and the performance of the current subsidy system against its objective of providing affordable cooking and lighting services, before assessing the viability of several proposed reform measures.

DBTL Performance Evaluation: Insights from the world's largest subsidy benefit transfer scheme (PDF – 2.6 MB)
This report, authored by the Council on Energy, Environment and Water (CEEW) and undertaken in coordination with the Ministry of Petroleum and Natural Gas (MoPNG), presents the results of a qualitative survey of DBTL program stakeholders in three wealthier high-LPG penetration states (Gujarat, Haryana and Kerala), identifying key issues and challenges in program design and implementation. 

 

April 2016

India's 2016 Budget - A Mixed Bag for Clean Energy Alternatives
On 29 February 29 2016, India’s Finance Ministry released its 2016 budget, with important implications for clean and efficient energy. The budget pledges to reform subsidies and taxes provided to fossil fuels and increase the clean energy cess but also sets a limit on accelerated depreciation, which may negatively impact investment in renewables.

 

March 2016

Estimating the impact of India’s Aadhaar scheme on LPG subsidy expenditure
This research note analyzes the fiscal impact of integrating the Aadhaar identity scheme within the re-launched DBTL program, showing that the maximum gross saving in FY 2014/15 from the use of Aadhaar (and before accounting for any costs) was approximately INR 120 crore (US$ 18 million)—less than 1% of stated estimates.

 

February 2016

More Ghost Savings: Understanding the fiscal impact of India's direct transfer program—Update (PDF – 901 KB)
Building on our research note analysing the fiscal impact of direct transfer for LPG in FY 2014-15, this policy brief assesses the impact of DBTL on the identification and blocking of irregular connections, showing that the maximum gross saving in FY 2014/15 from Aadhaar-based deduplication (before accounting for any costs) was approximately INR 12-14 crore (US$ 2 million)..

 

November 2015

G-20 Subsidies to Oil, Gas and Coal Production: India (PDF - 1.2 MB)
Excel data on production subsidies in India

As part of a project jointly prepared by the Global Subsidies Initiative (GSI), Oil Change International (OCI) and the Overseas Development Institute (ODI), this country study and accompanying data sheet compiles publicly available information on subsidies to oil, gas and coal production in India. It is one of the background papers to the report Empty Promises: G20 Subsidies to Oil, Gas and Coal Production.

Recent trends in LPG consumption in India
Building on our research note analyzing the fiscal impact of direct transfer for LPG in FY 2014-15, this data brief provides additional data on recent trends in LPG consumption and subsidy expenditure, showing that total subsidized consumption by volume, subsidized consumption as a percentage of household consumption and subsidized consumption as a percentage of total consumption all increased sharply in FY 2014-15.

Redistributing up: How India’s fuel subsidy policies have short-changed Bihar
This data brief analyzes the per capita consumption of subsidized fuel products in the state of Bihar—one of the poorest and most populous in the Indian Union—demonstrating that the state has consistently been the lowest per capita recipient of fuel subsidy transfers amongst all states and Union Territories.

 

October 2015

Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India (PDF – 4.22 MB)
This study analyzes how subsidized electricity has incentivised groundwater extraction in Haryana, India. The research identifies agricultural subsidies in general and then quantifies the major irrigation, fertilizer and agricultural electricity subsidies. The study concludes with options available for the reform of these subsidies. It also emphasizes the general need for more in-depth political economy analysis of the political action and influence by consumer groups on one side, and the operation and future of distribution companies on the other.

Ghost savings’: Understanding the fiscal impact of India’s direct transfer program
This research note analyses the claim that the re-introduction of direct benefit transfer for LPG subsidies (DBTL) resulted in fiscal savings for the government in the last financial year, demonstrating (through calculations based on publicly reported data) that the re-introduction of DBTL instead came at a substantial net cost in FY 2014-15.

 

July 2015

Spatial distribution of fossil fuel subsidies in India (data update)
This research note provides updated data on the spatial distribution of diesel, LPG and kerosene subsidies in FY 2013/14. The note also presents combined per capita expenditure data for fuel products still subject to price subsidies (LPG and kerosene) to reflect the cessation of diesel subsidies from September 2014 onwards.

 

May 2015

Diesel Subsidy Reform in India: Lessons Learned (PDF – 991 KB)
This policy brief outlines the context for India’s diesel subsidy reforms, details the process of reform design and implementation and its impact and assesses the prospects for further reform of India’s energy subsidies. 

DBTL is not subsidy reform
This research note explains why the direct transfer scheme for LPG subsidies (DBTL) does not constitute subsidy reform, outlining how it increases the administrative cost of delivery, reduces the net value of the subsidy to the consumer, exacerbates the (already highly) regressive distribution of subsidy expenditure, and will not meaningfully reduce total fiscal outlay. 

 

April 2015

Case Study: India's Accelerated Depreciation Policy for Wind Energy (PDF - 1.58MB)
In recent decades, wind power in India been deployed at a tremendous rate, such that wind power projects now account for two thirds of total renewable energy generating capacity and almost one tenth of total installed generating capacity. This case study examines one of the policies that is widely considered to be the primary driver behind this expansion—accelerated depreciation (AD) for wind power projects. It considers not only the increase in wind power capacity and to what extent this can be attributed to the AD policy, but also how the policy has affected wind power generation and the development of the wind turbine industry in India. The analysis draws on research conducted to date on this and similar policies in other countries (notably the United States), as well as on a series of interviews with industry stakeholders. It draws conclusions on the positive and negative lessons that can be learned from the AD policy and how these could be incorporated into future policies in the sector, both in India and elsewhere.

 

December 2014

India Energy Subsidy Review Volume 1 Issue 2 (PDF – 1.7 MB)
The most recent edition of the India Energy Subsidy Review provides an overview of total consumption and subsidy expenditure for diesel, Liquefied Petroleum Gas (LPG) and kerosene, details key policy developments, and outlines a series of policy recommendations related to each product.

Kerosene Subsidies in India (PDF – 0.5 MB)
This data brief provides a detailed overview of kerosene consumption patterns, Public Distribution System (PDS) kerosene pricing, and kerosene subsidy expenditure.

 

November 2014

Spatial Distribution of Fossil Fuel Subsidies in India (PDF – 1.0 MB)
This data brief outlines the spatial distribution of diesel, LPG and kerosene subsidies, highlighting the highly regressive and inequitable distribution of fuel subsidy expenditure between different states and Union Territories.

 

October 2014

Indian energy pricing: Two steps forward, one step back
This research note analyses a series of recent energy policy announcements in relation to diesel subsidies, natural gas pricing and LPG subsidy distribution.

 

May 2014

Power, Gender and Fossil-Fuel Subsidy Reform in India (PDF – 1.66 MB)
This paper explores the link between fossil-fuel subsidies and gender in India. It focuses on the likely gender impacts of reform across cooking, lighting, water pumping and transport fuels. Research finds subsidies have provided little benefit to the rural population and to the poor, especially to two thirds of people who rely on biomass for cooking. Reform of subsidies should mitigate negative impacts of reform for women, and rather increase access to sustainable energy and empowerment of women. Benefit transfer schemes, designed to compensate fuel users, have not reached many rural women due to a lack of financial inclusion. The report describes existing efforts around gender budgeting within the energy sector, and analyses available time-use and energy household survey data.

Evaluation of the Pilot Project on Direct Transfer of Kerosene Subsidies in Kotkasim, Alwar (PDF – 1.74 MB)
Over 40 per cent of households in India have no access to modern lighting fuels. With electrification yet to reach every village, kerosene is a major source of lighting for these households. Kerosene is provided at subsidized rates through the government-sponsored Public Distribution System (PDS). The sale of kerosene at subsidized rates leads to high costs for the government and oil companies. In December 2011, the Government of Rajasthan, with support from the Central Government, launched a pilot scheme in Kotkasim, Alwar to test a system of direct transfers to the bank accounts of ration cardholders as a means of distributing PDS kerosene subsidies. Under the scheme, every ration cardholder is allocated 3 litres of kerosene per month at the market rate (which equals the depot rate plus state-level taxes). The subsidy amount (as determined by the state authorities) is then transferred to the bank’s accounts of the ration card holder on a quarterly or monthly basis. This study was undertaken to assess and evaluate the pilot project in Kotkasim with a focus on answering the following issues: how the pilot project performed against its stated policy objectives; How the pilot project impacted kerosene-consuming households, including their ability to access the subsidy and effects on household expenditure; and the policy implications for the reform of the kerosene subsidy system more generally.

Subsidies to Liquefied Petroleum Gas in India: An assessment of the direct benefit transfer in Mysore (PDF – 1.3 MB)
This report outlines the results of beneficiary surveys undertaken in Mysore district following the pilot introduction of the Direct Benefit Transfer for LPG (DBTL) scheme. 

 

March 2014

Assessing Green Industrial Policy - The India Experience (PDF - 1.9 MB)
This report focuses on the wind and solar PV sectors in India. It reviews the Indian policy framework for increasing the share of renewables in the energy mix within the context of multiple social, economic and technological objectives. Based on this analysis, it concludes that while support to the industry has come at a relatively low cost, development has been slow and many policies have been found wanting when evaluated against the originally proposed goals. The report suggests that ‘green ’rather than ‘industrial’ elements have been best supported by policy to date. Impacts are most clearly seen in energy security and access, avoided health costs and the abatement of greenhouse gas emissions, while the industrial policy element has fared poorly in comparison. Marrying the two elements more completely will allow the benefits of a renewable energy manufacturing sector and environmental protection to be successfully realized.

Subsidies to Liquefied Petroleum Gas in India: An overview of recent reforms (PDF – 1.92 MB)
This data brief provides a detailed overview of LPG consumption patterns, pricing and subsidy expenditure, subsidy distribution mechanisms, and recent reforms to LPG subsidies.

 

February 2014

India Energy Subsidy Review Volume 1 Issue 1 (PDF – 2.3 MB)
This is the first edition of the India Energy Subsidy Review, a new biannual publication of the GSI. Part One of each edition outlines economic and policy developments affecting India’s subsidized key fuel markets (diesel, liquefied petroleum gas, kerosene and natural gas), and analyses the dynamics of each market. Part Two features analysis by guest authors on issues related to energy pricing policy. In this edition, two articles examine the impact of energy subsidy reforms on India’s transport and agriculture sectors respectively. This edition of the review concludes with a commentary by Dr Kirit Parikh and Jyoti Parikh, distinguished practitioners in the field.

Balancing State, Utility and Social Needs in Agricultural Electricity Supply (PDF – 619 KB)
This paper, prepared by CUTS Institute for Regulation and Competition, examines the challenges in reforming subsidized electricity for India's agricultural sector. Since the late 1960s, political parties have endorsed agricultural electricity supply at highly subsidized rates, sometimes free and mostly unmeasured. These subsidies have increasingly come under scrutiny for their economic inefficiencies and environmental impacts. The authors maintain that reforms must pay careful attention to social, political, economic and environmental aspects. Drawing on empirical evidence, this paper outlines a broad approach to the reform of agricultural electricity subsidies.

Understanding Fossil-Fuel Subsidies in India: Questions and Answers (PDF – 1.34 MB)
This comic book provides an accessible and fun introduction to fossil-fuel subsidies in India. It details how the subsidies work, their impacts on people and the economy, and what the Indian government is doing to change these policies.

 

June 2013

The Impact of India's Diesel Price Reforms on the Trucking Industry (PDF 727 KB)
Policy Brief: The Impact of India's Diesel Price Reform on the Trucking Industry (PDF  518 KB)
This report published by the GSI and the Integrated Research and Action for Development (IRADe) analyses the vulnerability of India’s trucking industry to the diesel price reforms and provides policy recommendations for minimizing the negative impacts. A policy brief to that report brief summarizes the main findings of that study and elaborates on policy measures to improve the trucking industry’s resilience in the face of higher fuel prices: 

 

August 2012

Diesel Pricing in India: Entangled in a Policy Maze (PDF 1.22 MB)
This report published by NIPFP analyzes the inflationary impacts of increasing diesel prices on the economy and on key groups. It provides recommendations and actions on how pricing mechanisms and taxation could be changed.

Fossil-Fuel Subsidy Reform in India: Cash transfers for PDS kerosene and Domestic LPG (PDF 1.27 MB)
This report authored by TERI, provides recommendations for designing and implementing direct cash transfers in India.

India’s Fuel Subsidies: Policy Recommendations for Reform (PDF 744 KB) 
This report authored by the GSI summarizes the research from the previous two reports, and highlights the key policy recommendations.In addition, the IISD has produced a 6-page Questions and Answers document that distils the key findings and recommendations, available here (PDF - 338 KB).

 

March 2010

Lessons Learned from Attempts to Reform India's Kerosene Subsidy (PDF - 892.92 KB)
This report examines attempts to reform India's long-standing subsidy on residential kerosene. At least one third of the subsidized kerosene is diverted to the black market for use as a transport fuel - a lucrative business for corrupt fuel distributors who, in turn, bribe government officials to obtain licenses to distribute or blend the fuel and to maintain the subsidy.

Resources

In addition to its research products, the GSI brings out regular news briefings about the latest developments in subsidy policy in India.

For background information about India's energy subsidies in 2012, see:

A Citizens’ Guide to Energy Subsidies in India (PDF – 1.1 MB)
This guide focuses on the scale and impacts of energy subsidies in India. At the most immediate level, energy subsidies place a heavy burden on government budgets, while often failing to reach their targeted beneficiaries. But digging deeper reveals that they have a profound effect on the environments in which people live and the economies in which they earn their living.