Lessons Learned from Attempts to Reform India's Kerosene Subsidy

By Bhamy Shenoy on March 11, 2010
Fuel subsidies are frequently used to assist disadvantaged groups such as the poor or regional communities. India's long-standing subsidy on residential kerosene is a good example of such a policy. Initially established as a distribution scheme during World War II, the subsidy has been maintained to provide poor households with fuel for cooking and lighting. Today, however, 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 subsidies. India has tried to reform the subsidy by targeting access to the poor more efficiently, tracking the subsidized kerosene and liberalizing fuel prices. These reforms have failed because of the strong political pressure to maintain the subsidies by the poor and the participants in the black market.

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IISD, 2010