Kerosene Subsidies in India: The status quo, challenges and the emerging path to reform

This policy brief examines the kerosene subsidy system in India, highlighting its financial costs, systemic inefficiencies, and the barriers it creates for the adoption of off-grid solar lighting. The authors argue that reforming these subsidies is essential to transition rural households toward cleaner energy alternatives.

• India accounts for 15 per cent of global kerosene consumption, with subsidized fuel distributed through a Public Distribution System (PDS) via Fair Price Shops (FPS). In FY 2015–16, total kerosene subsidies reached INR 11,496 crore (USD $1.8 billion), which constituted 41.7 per cent of all fuel subsidies.
• The PDS kerosene system suffers from extreme leakage and diversion, estimated at a national average of 45 per cent based on 2011–12 data. This diversion is primarily driven by the incentive to adulterate subsidized kerosene with more expensive diesel fuel. Leakage is most severe in northeastern states, with Nagaland estimated at 97 per cent, Manipur at 84 per cent, Sikkim at 80 per cent, Arunachal Pradesh at 76 per cent, and Meghalaya at 70 per cent.
• Kerosene subsidies are poorly targeted and often fail to reach the poorest populations. The poorest 20 per cent of rural households receive only about 14 per cent of the allocated kerosene share for rural areas. Additionally, only 54 per cent of households regularly receive their full monthly PDS kerosene quota due to diversion and complex eligibility requirements.
• Subsidies create a financial barrier to the adoption of solar lighting. While entry-level solar lanterns are slightly cheaper than kerosene even with subsidies, mid- and high-level systems are more expensive for households to operate than subsidized kerosene. However, if subsidies were removed, solar lanterns across all levels would become significantly more cost-effective over their lifetime.
• The Indian government has attempted to reduce subsidy expenditure through gradual price increases and by reducing PDS allocations. Some regions have successfully transitioned; Delhi was declared the first kerosene-free city in June 2014, followed by Chandigarh in April 2016, and the state of Haryana in April 2017.
• The authors recommend a multi-pronged reform strategy: simplifying eligibility to 'below poverty line' households, tying access to a lack of electricity, retraining kerosene dealers to sell solar alternatives, and eventually transforming the kerosene subsidy into a general 'lighting subsidy' for solar solutions.

APA

Garg, V., Sharma, S., Clarke, K., & Bridle, R. (2017). Kerosene Subsidies in India: The status quo, challenges and the emerging path to reform. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/kerosene-in-india-staus-quo-path-to-reform.pdf

Chicago

Garg, Vibhuti, Shruti Sharma, Kieran Clarke, and Richard Bridle. Kerosene Subsidies in India: The status quo, challenges and the emerging path to reform. International Institute for Sustainable Development, 2017. https://www.iisd.org/system/files/publications/kerosene-in-india-staus-quo-path-to-reform.pdf.

Wikipedia

{{cite report |last1=Garg |first1=Vibhuti |last2=Sharma |first2=Shruti |last3=Clarke |first3=Kieran |last4=Bridle |first4=Richard |title=Kerosene Subsidies in India: The status quo, challenges and the emerging path to reform |publisher=International Institute for Sustainable Development |date=May 2017 |url=https://www.iisd.org/system/files/publications/kerosene-in-india-staus-quo-path-to-reform.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{garg2017kerosene, author = {Garg, Vibhuti and Sharma, Shruti and Clarke, Kieran and Bridle, Richard}, title = {{Kerosene Subsidies in India: The status quo, challenges and the emerging path to reform}}, institution = {International Institute for Sustainable Development}, year = {2017}, month = may, url = {https://www.iisd.org/system/files/publications/kerosene-in-india-staus-quo-path-to-reform.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }