Policy Approaches for a Kerosene to Solar Subsidy Swap in India

This report proposes redirecting India's kerosene subsidies toward off-grid solar products to provide reliable, clean energy to marginalized households. It demonstrates that solar lanterns, home systems, and microgrids are cheaper over their lifespan than subsidized kerosene and would reduce government fiscal risk and indoor air pollution. The report outlines three implementation pathways—subsidizing households, manufacturers, or financial institutions—and emphasizes the need for targeted eligibility and robust after-sales service to ensure a successful transition.

• Off-grid solar products are more cost-effective for households and the government than subsidized kerosene over the long term. For example, the levelized monthly cost of a solar lantern is INR 54, compared to a total cost of INR 183 when including household expenditure and government subsidies for kerosene. The net monthly cost of swapping to a solar lantern is -129 INR, while for a solar home system it is -41 INR and for a solar microgrid it is -37 INR.
• Despite high electrification rates, millions of Indian households continue to rely on kerosene for lighting due to unreliable grid power or unaffordability. In some remote areas, grid-connected households may only receive one to five hours of electricity per day, and 83 per cent of such households in surveyed villages used kerosene daily. Furthermore, 80 per cent of households in one survey cited unaffordability as the reason for refusing a grid connection.
• The continued use of kerosene presents significant health, social, and fiscal risks. Kerosene produces indoor air pollution with particulate matter levels that can exceed World Health Organization guidelines and provides low-quality light that limits education and income opportunities. Fiscally, the government faces budget volatility due to international oil prices; in FY 2018/19, spending on cooking gas and kerosene subsidies was 84 per cent higher than initial budget estimates.
• A significant portion of subsidized kerosene is diverted to the black market rather than being used for lighting. Nationally, up to 45 per cent of subsidized kerosene is diverted for illegal uses, such as irrigation or transport. This leakage represents a loss of public funds that could be redirected toward clean energy.
• The report proposes three main subsidy pathways to facilitate the transition to solar: 1) direct payments to households (via cash or direct benefit transfers) to maximize consumer choice; 2) subsidies for manufacturers to reduce final product prices and allow for bulk buying; and 3) subsidies for banks and microfinance institutions (MFIs) to make loans more affordable for those without regular income or credit history.
• Transitioning from kerosene to solar supports India's broader environmental and energy security goals. Kerosene accounted for approximately a quarter of all energy-related residential greenhouse gas emissions in 2013 (about 27 million tonnes of CO2). Additionally, eliminating kerosene would reduce reliance on imported oil, which constituted 86 per cent of India's oil in FY 2018/19, potentially avoiding 4.4 million tonnes of imports.

APA

Laan, T., Viswanathan, B., Beaton, C., Shardul, M., Gill, B., & Palit, D. (2019). Policy Approaches for a Kerosene to Solar Subsidy Swap in India. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/india-kerosene-solar-swap.pdf

Chicago

Laan, Tara, Balasubramanian Viswanathan, Chris Beaton, Martand Shardul, Bigsna Gill, and Debajit Palit. Policy Approaches for a Kerosene to Solar Subsidy Swap in India. International Institute for Sustainable Development, 2019. https://www.iisd.org/system/files/publications/india-kerosene-solar-swap.pdf.

Wikipedia

{{cite report |last1=Laan |first1=Tara |last2=Viswanathan |first2=Balasubramanian |last3=Beaton |first3=Chris |last4=Shardul |first4=Martand |last5=Gill |first5=Bigsna |last6=Palit |first6=Debajit |title=Policy Approaches for a Kerosene to Solar Subsidy Swap in India |publisher=International Institute for Sustainable Development |date=April 2019 |url=https://www.iisd.org/system/files/publications/india-kerosene-solar-swap.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{laan2019policy, author = {Laan, Tara and Viswanathan, Balasubramanian and Beaton, Chris and Shardul, Martand and Gill, Bigsna and Palit, Debajit}, title = {{Policy Approaches for a Kerosene to Solar Subsidy Swap in India}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = apr, url = {https://www.iisd.org/system/files/publications/india-kerosene-solar-swap.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }