Fossil-Fuel Subsidy Reform in India

The report examines the high cost of petroleum subsidies in India, specifically for domestic LPG and PDS kerosene, and proposes a transition to direct cash transfers. It highlights significant under-recoveries for oil marketing companies and systemic leakages in the Public Distribution System (PDS). The authors recommend short-term measures such as capping subsidized LPG cylinders and conducting more pilot studies, while proposing long-term reforms including improved BPL surveys, increased financial inclusion, and calibrated price decontrol.

• India's petroleum product subsidies have led to massive financial losses; in 2011–2012, oil marketing companies (OMCs) faced under-recoveries of INR 1,38,541 crore (US$ 27.06 billion), a figure that has tripled since 2009–2010.
• The current PDS kerosene system suffers from significant illegal diversion, with an estimated 37.6 per cent diversion rate in 2005–2006 resulting in losses of over INR 5,000 crore in subsidies and under-recoveries, plus INR 1,021 crore in lost excise duties.
• LPG subsidies are regressive because they are universal for all domestic consumers, meaning a disproportionate share of the benefit accrues to wealthier households while rural penetration remains low.
• Capping subsidized LPG cylinders at eight per year per household could generate potential savings of approximately INR 4,089.22 crore (US$ 897.22 million), representing 17.24 per cent of the total subsidy and under-recovery for 2010–2011.
• A pilot project in the Kotkasim block of Alwar district, Rajasthan, showed that replacing PDS kerosene subsidies with cash transfers led to a drastic reduction in kerosene purchases, falling from 82,000 litres in November 2011 to 13,000 litres by February 2012.
• The implementation of nationwide cash transfers is hindered by low financial inclusion; an estimated 40 per cent of the Indian population lacks access to basic formal financial services.
• The report suggests that if all savings from PDS kerosene under-recoveries and subsidies in 2010–2011 were redistributed to all below-poverty-line (BPL) families, each household could receive between INR 1,565.57 and INR 3,131.14 per annum.

APA

International Institute for Sustainable Development (2012). Fossil-Fuel Subsidy Reform in India. https://www.iisd.org/gsi/sites/default/files/ffs_india_teri_rev.pdf

Chicago

International Institute for Sustainable Development. Fossil-Fuel Subsidy Reform in India. 2012. https://www.iisd.org/gsi/sites/default/files/ffs_india_teri_rev.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Fossil-Fuel Subsidy Reform in India |date=August 2012 |url=https://www.iisd.org/gsi/sites/default/files/ffs_india_teri_rev.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2012fossilfuel, author = {{International Institute for Sustainable Development}}, title = {{Fossil-Fuel Subsidy Reform in India}}, institution = {International Institute for Sustainable Development}, year = {2012}, month = aug, url = {https://www.iisd.org/gsi/sites/default/files/ffs_india_teri_rev.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }