Delhi may kick off direct subsidy plan

Delhi may become the first state to move to direct cash pay-outs of subsidies on kerosene sold through the public distribution system (PDS).

The petroleum ministry said it has "welcomed" a proposal to this effect from the Planning Commission, which acted on a plan suggested by Delhi Chief Minister Sheila Dikshit.

"Cash transfers will check the diversion of kerosene meant for the PDS. Delhi has 4.39 million LPG connections and some areas also have piped natural gas connection. This essentially points to a high incidence of diversion in kerosene," said a petroleum ministry official.

Kerosene sells in the Delhi's ration shops at Rs 9 a litre--a price unchanged since 2002--against an open market price of around Rs 25.The scheme proposes to open bank accounts in the name of the female head of the family and a cash equivalent of the kerosene subsidy will be directly transferred to the account.

The scheme is roughly on the lines of a suggestion by the Kirit Parikh committee set up to recommend ways to contain the oil subsidy and improve the financial health of the state-owned oil marketing companies, which sell auto and cooking fuel below cost by political diktat.

The Parikh committee, which submitted its report on February 3, suggested using smart-cards to enable the government to transfer cash subsidies for kerosene, traditionally regarded as the poor man's cooking fuel, directly to consumers in the interests of better targeting and curbing leaks in the system.

According to a survey by the National Council of Applied Economic Research, over 50 per cent of the 173.8 million litres of kerosene meant for the PDS is diverted to the black market in Delhi. The state's annual subsidy bill on kerosene is Rs 313 crore.

The petroleum ministry official hoped more states would come up with similar proposals. The ministry is also keen to gradually convert the national capital into a kerosene-free city by issuing more LPG connections to the uncovered population. The direct transfer mechanism for the kerosene subsidy could be a precursor to the Delhi government's longer-term plans to transfer all subsidies (food, fertiliser and LPG) directly.

The Delhi government has taken a lead role in implementing oil sector reforms that the Centre wants to achieve but has made little headway.  In its Budget for 2010-11, for instance, the Delhi government rolled back the Rs 40 subsidy on LPG, raised VAT on diesel from 12.5 to 20 per cent and imposed a five per cent VAT on compressed natural gas. The Union government, however, has not so far implemented any of the recommendations of the Kirit Parikh report. The committee has suggested market-linked prices for petrol and diesel and a partial price increase for LPG and kerosene.

Currently, oil marketing companies lose nearly Rs 17 on every litre of kerosene meant for the PDS. The national under-recovery (revenue loss to oil companies) on kerosene has grown from Rs 3,751 crore in 2003-04 to Rs 28,225 crore in 2008-09 due to a surge in crude oil prices.