INDIA ENERGY SUBSIDY REVIEW

The report examines India's energy subsidy regime, highlighting the significant fiscal burden of fuel subsidies, which cost an average of 1.4 per cent of GDP since FY 2008. It details policy shifts in diesel, LPG, kerosene, and natural gas markets, noting that while the government has pursued incremental price increases for diesel and consumption caps for LPG, currency depreciation and high international oil prices have maintained high under-recoveries. The document also analyzes the regressive nature of these subsidies, their impact on the trucking industry, and the inefficiencies of subsidized agricultural electricity, which encourages groundwater depletion. It recommends transitioning toward market-based pricing, targeted cash transfers, and structural improvements in transport and irrigation management.

• Fuel subsidies in India represent a major fiscal strain, with 13.7 per cent of budget expenditure allocated to fuel subsidy payments in FY 2012—2013, and an average cost of 1.4 per cent of GDP since FY 2008.
• The Indian government implemented a policy of incremental monthly price increases for diesel starting in January 2013 to eliminate under-recoveries by mid-2014, resulting in a price rise of 12.63 per cent between January and December 2013.
• Subsidized LPG consumption was managed through a household quota that increased from six cylinders per annum in September 2012 to nine in January 2013, and further to 12 in January 2014.
• A Direct Benefit Transfer (DBT) program for LPG subsidies, launched in May 2013 in selected districts, was discontinued in January 2014 due to implementation problems and legal challenges.
• A new domestic natural gas pricing formula announced in June 2013, based on a weighted average of imported gas and international trading points, could potentially double gas prices from April 2014.
• Subsidized agricultural electricity in India is described as moderately regressive, benefiting wealthier farmers more than smallholders, and contributing to groundwater depletion and financial distress for state utilities.
• Fuel subsidies are often socially regressive; for example, the poorest 20 per cent of households received only 1 per cent of the LPG subsidy in rural areas and 8 per cent in urban areas in FY 2012—2013.
• The trucking industry is highly vulnerable to diesel price increases due to structural issues, including poor road quality, tollgate delays, and the inability of small operators to pass costs to customers due to informal contracts and stiff competition.

APA

Clarke, K., Sharma, S., & Vis-Dunbar, D. (2014). INDIA ENERGY SUBSIDY REVIEW. International Institute for Sustainable Development. https://www.iisd.org/gsi/sites/default/files/ffs_india_review_february2014.pdf

Chicago

Clarke, Kieran, Shruti Sharma, and Damon Vis-Dunbar. INDIA ENERGY SUBSIDY REVIEW. International Institute for Sustainable Development, 2014. https://www.iisd.org/gsi/sites/default/files/ffs_india_review_february2014.pdf.

Wikipedia

{{cite report |last1=Clarke |first1=Kieran |last2=Sharma |first2=Shruti |last3=Vis-Dunbar |first3=Damon |title=INDIA ENERGY SUBSIDY REVIEW |publisher=International Institute for Sustainable Development |date=February 2014 |url=https://www.iisd.org/gsi/sites/default/files/ffs_india_review_february2014.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clarke2014india, author = {Clarke, Kieran and Sharma, Shruti and Vis-Dunbar, Damon}, title = {{INDIA ENERGY SUBSIDY REVIEW}}, institution = {International Institute for Sustainable Development}, year = {2014}, month = feb, url = {https://www.iisd.org/gsi/sites/default/files/ffs_india_review_february2014.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }