ffs_india_qa-8dddec6aaf0feae7.pdf

This August 2012 factsheet by the International Institute for Sustainable Development (IISD) summarizes research on India's fuel subsidies for high-speed diesel, domestic liquefied petroleum gas (LPG), and public distribution system (PDS) kerosene. It details the fiscal burden of these subsidies, the market distortions they create, and provides a roadmap for reform through price deregulation and targeted cash transfers.

• In the 2011–12 period, India's fuel subsidies and under-recoveries reached INR 1.4 trillion (US$ 27.7 billion). This expenditure, combined with food and fertilizer subsidies, grew by 27% over the previous year and contributed to a fiscal deficit of 1.3% of the GDP for 2011–12.
• India regulates the prices of three 'sensitive' petroleum products—high-speed diesel, domestic LPG, and PDS kerosene—by selling them below international benchmark prices. This creates under-recoveries for downstream oil marketing companies (OMCs), which are only partially offset by government cash compensation and burden-sharing from upstream national oil companies.
• Fuel subsidies cause significant market distortions and inefficiencies, including the proliferation of diesel vehicles, the diversion of kerosene for diesel adulteration, and the commercial use of domestic LPG. These subsidies also hinder energy efficiency and fuel standards, which increases local pollution and global greenhouse gas emissions.
• Raising diesel prices is estimated to have a cascading inflationary effect. A 25% increase in diesel prices—which would eliminate under-recoveries—is projected to raise general price levels by approximately 1%. Specific sector cost increases would include 10% for goods/freight transporters, 8% for large public transport operators, and 2.75% for wheat cultivation.
• The document recommends a phased approach to diesel reform, starting with the progressive elimination of under-recovery over one year (potentially at INR 1 per litre per month) and moving toward full liberalization of pricing in the long term.
• For LPG and PDS kerosene, the research suggests phasing out subsidies in favor of direct, unconditional targeted cash transfers for low-income households. This is supported by evidence that LPG subsidies primarily benefit urban, upper-income households and that over 37% of subsidized kerosene is diverted to unintended recipients.
• The government's goal for total subsidies (including food and fertilizer) is to keep them under 2% of GDP in 2012–13 and further reduce them to under 1.75% over the following three years.

APA

International Institute for Sustainable Development (n.d.). ffs_india_qa-8dddec6aaf0feae7.pdf. https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf

Chicago

International Institute for Sustainable Development. ffs_india_qa-8dddec6aaf0feae7.pdf. n.d. https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=ffs_india_qa-8dddec6aaf0feae7.pdf |url=https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopmentndffsindiaqa8dddec6aaf0feae7pdf, author = {{International Institute for Sustainable Development}}, title = {{ffs\_india\_qa-8dddec6aaf0feae7.pdf}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }