Kerosene oil price: Kerosene subsidy removed via small price hikes over 4 years

New Delhi: India has eliminated subsidy on kerosene through small fortnightly price increases for nearly four years amid low oil prices, enabling savings for the government at a time when it is facing a revenue shortfall, thus raising expectations of a quick end to cooking gas subsidy that’s also being cut gradually.

The government instructed state-run oil companies this month to price kerosene at market rates after regular price revisions obviated the need of subsidy for kerosene sold through public distribution system, according to people familiar with the matter.

Queries emailed by ET to the petroleum and natural gas ministry did not elicit any response till press time on Thursday.

Kerosene prices fell by 23 paise a litre this month, the first fall since July 2016 when oil companies started raising prices by 25 paise a fortnight following a directive from the government.

Kerosene prices more than doubled to ₹36.38 a litre last month in Mumbai from ₹15.02 in July 2016. Price fell to ₹36.15 per litre in March. The subsidy on kerosene in the current financial year would be about ₹1,950 crore, according to the government’s estimates.

Incremental increases in the past four years went almost unnoticed and barely evoked any comments from the opposition, which often turns fuel subsidy into a tool of political dissent. Low oil prices too helped cut subsidy sharply for a government that has been driving hard to cut consumption of kerosene, which is mainly used by poor families for cooking and lighting, and replace it with cooking gas and grid electricity.

In just three years, consumption of kerosene has halved. It fell to 4,152 thousand kilo litres in 2018-19 from 8,537 thousand kilo litres in 2015-16. Consumption during April-January 2020 declined 29% from that a year ago. “This was mainly because of reduced kerosene allocation and voluntary surrender of some of the allocation by states. A total of nine states/UTs have become kerosene free,” the oil ministry’s Petroleum Planning and Analysis Cell said in its latest monthly report.

State-run oil companies have also been raising cooking gas prices by ₹4 per 14-kg cylinder every month, lowering subsidy bill for the government. Subsidised cooking gas prices have risen by about ₹70 per cylinder in eight months.

The recent oil price collapse is expected to sharply cut cooking gas subsidy. If prices stay at current levels and companies continue to raise prices, cooking gas subsidy can quickly vanish.

The cooking gas subsidy for the current fiscal is expected to be ₹23,000 crore, as per the government’s estimates.