India’s Fuel Subsidies: Q & A

In 2011–12, India's fuel subsidies and under-recoveries totaled INR 1.4 trillion (US$ 27.7 billion), contributing to a fiscal deficit of 1.3 per cent of GDP. The document argues that these subsidies create market distortions, encourage fuel diversion, and undermine energy efficiency. It recommends a phased approach to reform: progressively decontrolling diesel prices over one year, capping LPG cylinders per household and phasing out subsidies over 3–5 years, and replacing PDS kerosene subsidies with targeted direct cash transfers for low-income households.

• In 2011–12, India's fuel subsidies and under-recoveries reached INR 1.4 trillion (US$ 27.7 billion), which contributed to a fiscal deficit of 1.3 per cent of the GDP.
• Fuel subsidies in India are primarily applied to three 'sensitive' petroleum products: high-speed diesel, domestic liquefied petroleum gas (LPG), and public distribution system (PDS) kerosene, all of which are sold below international benchmark prices.
• Subsidies lead to significant market distortions and corruption, including the diversion of subsidized kerosene for diesel adulteration or open market sale, and the use of domestic LPG for commercial purposes.
• Raising diesel prices by 25 per cent is estimated to cause a 1 per cent increase in general price levels, with disproportionate impacts on freight transporters (10 per cent cost increase) and public transport operators (8 per cent cost increase).
• The document recommends a transition for PDS kerosene subsidies toward a direct, unconditional targeted cash transfer for low-income households, noting that a pilot study in Alwar, Rajasthan, showed savings of 60 to 80 per cent.
• For domestic LPG, the research suggests introducing a cap of eight cylinders per household by 2013 and implementing a complete phase-out of subsidies over a 3–5 year period.

APA

International Institute for Sustainable Development (2012). India’s Fuel Subsidies: Q & A. https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf

Chicago

International Institute for Sustainable Development. India’s Fuel Subsidies: Q & A. 2012. https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=India’s Fuel Subsidies: Q & A |date=August 2012 |url=https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2012indias, author = {{International Institute for Sustainable Development}}, title = {{India’s Fuel Subsidies: Q \& A}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = aug, url = {https://www.iisd.org/gsi/sites/default/files/ffs_india_qa.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }