As usual nothing 100% technically or politically correct. and
As usual media is not playing its role right. Since yesterday they’re all crying in loud and angry tone that they all are covering Kirit Parikh Committee’s Report only highlighting “LPG rates will be hiked by Rs 100 per cylinder and kerosene by Rs 6 per litre.” And their tone is like Mr. Parikh is the enemy #1 of India by suggesting price rise in petro-products. But none of them is actually explaining why exactly Parikh is recommending for price rise?
So here see the other side of the mirror-
PDS= public distribution system (Raashan ki dukaan.)
PDS Kerosene price has remained at around Rs.9 per litre at Delhi since 2002.
· If kerosene is expensive then Poor Girls will be forced to collect firewood all day= can’t go to school
· deforestation = climate change + global warming.
· Villagers using Cattle-dung
· but Cattle dung has better use a manure.
See this chart
· indoor pollution
· respiratory disease, eye burns.
· thus, Life-Expectancy of women + infants reduced.
These are Govt.’s good intentions for selling cheap kerosene but lets look @ the ground realities.
· price of PDS kerosene in India is very low in comparison with that in neighbouring countries -Bangladesh and Nepal.
· The price of kerosene in Bangladesh and Nepal is Rs. 29.28/litre and Rs.
· 36.29/litre respectively as in January 2010, more than 3 to 4 times the price in India.
· So people are doing cross-border smuggling this is referred as ‘Fuel tourism’
Size zero coins
· Related to the ‘fuel tourism’, previously our currency coins were ‘thick in size’ esp Rs. 2 & 5 but these people would smuggle it to Bangladesh and melt it and make shaving razor-blades from it.
· For e.g.out of 2 Rs.’s thick coin they’ll make 10 blades and sell it for 5 Rs. and cutting their production cost- they’ll still make good profit.
· that is one of the reason why Govt. changed our coins- now you’ve ‘thin-size zero’ coins for 1/2/5/10.
· Anyways, back to the topic-
NSSO survey says that
· In 2004-05, 62% of the rural households got kerosene only from PDS and
· consumed less than 3.5 litres per month
· But, less than 1% used it for cooking but 60% used it for lighting.
· Means they’re using firewood and dung for cooking even when we give them cheap kerosene.
· (so it kills the purpose of saving poor women from indoor pollution / firewood gathering by giving cheap kerosene.)
Diagram- solutions & problems
· The primary objective of subsidizing kerosene is for lighting purpose.
· In the absence of electricity, kerosene has, for long, been the only source of lighting (apart from more expensive vegetable oil-based lamps).
· However, with the development of LED lights, LED lanterns using ordinary dry cells provide an alternative
· which, at comparable cost to what household spend on subsidized kerosene, provides better light and involves no subsidy.
· As manufacturers make these lanterns available across the country, the need for kerosene for lighting will reduce.
· But, these alternatives pose the problem of safe disposal of used-up cells but its not really challenging task.
· Solar lighting systems can also provide an alternative albeit at a much higher initial cost.
· For BPL people, there is Rajiv Gandhi Gramin Vidyutikaran Yojna (RGGVY),for getting electricity supply but yet they’re using kerosene for lights.
· Since kerosene subsidy is going largely for lighting, the allocations should be reduced as more and more BPL households are connected to the electricity grid.
· Such connections under the RGGVY are subsidized and continuing kerosene supply to such households amounts to double subsidy.
· Large price difference between PDS kerosene and diesel is an incentive to divert
· kerosene to adulterate diesel.
· Estimates suggest 35% or more of PDS kerosene is diverted for unauthorized purposes including adulteration.
· A consequence of this diversion is that the more than Rs.20000 crore of investment in producing Euro III and Euro IV diesel would be negated to large extent if diesel continues to get adulterated by kerosene.
· Govt. adds some dye in kerosene so PDF kerosene becomes blue color, but that doesn’t solve anything. (if you put sand +charcoal+ some chemical power then blue colored kerosene will become white again)
· first important step in kerosene pricing should be to have one price in the market
· Kerosene price should be close to the price of diesel so as to eliminate any incentive to mix it with diesel!
· This can be achieved if PDS kerosene is provided to BPL households through a system of smart
· cards with biometric identification.
· The cards would indicate the household‟s entitlement of subsidized kerosene.
· This will reduce PDS kerosene need by one third, as diversion would cease.
· When we say kerosene’s price should be closer to diesel’s price so it becomes unprofitable to mix kero with diesel.
· But then you full proof distribution of subsidy kerosene and OR give direct cash to poors so they buy kerosene from market instead of PDS shop.
· But then suppose a poor man given 100 Rs. To buy monthly kerosene for his family , he may not buy it and instead buy liquor and beat up his wife to collect firewood from jungle for cooking.
· Thus, The argument for providing subsidy in kind rather than in cash rests on the problem of intra-household distribution of expenditure where a woman‟s needs may get a lower priority.
· This intra-household distribution problem can be addressed to some extent by transferring cash to the account of woman of the household
· the use of Smart Cards for targeting the subsidy on kerosene may take two years or more until the UID project becomes fully operational,
· so Parikh Committee recommended that allocation across states should be rationalized to bring down all-India allocation by at least 20% and
· price of PDS kerosene be increased to at least Rs.15/litre so as to keep subsidies under reasonable level
· this will keep diversion and adulteration under check.
· Thereafter, price of PDS kerosene be raised every year in step with the growth in per capital agricultural GDP at nominal price.
· Over the years, distribution of PDS kerosene has developed an inverse relationship
· with the income levels of states, which needs to be rationalized.
· For instance, the average per capita kerosene allocation in high income States in 2007-08 was 14.1 litre
· which was 41% higher than that of the low income States.
· economic development and improvement in power supply, the percentage of households using kerosene in different States has declined. (so where is all this Kerosene going ?)
· Most of the households use only 3.5 litres per month. State-wise
· allocation should be based on the number of BPL households without electricity in rural areas
· and urban households using kerosene for cooking. Since electricity supply may be erratic, a
· smaller allocation say 2 litres per month may be made for electrified BPL households.
· subsequent progress of rural electrification, LPG and piped gas
· availabilities is expected to reflect much larger reductions in Kero use in coming years.
Poorest Rural BPL spends around 2 per cent of its monthly expenditure on kerosene.
While they spend 13 %per cent of , what one might call, its discretionary expenditure on
2. personal effects,
3. toilet articles,
4. sundry articles,
5. consumer services
There is therefore, some scope for increasing price for PDS kerosene.
if we take the growth rate of per capita
GDP in agriculture, that should give a good measure of the ability of the rural poor to pay.
· PDS Kerosene prices have not been raised from around Rs.9 per litre since March 2002.
· During 2002-03 to 2008-09, the per capita agriculture GDP at current prices has increased by around 60% (at an annual compound growth rate of 6%).
· By 2009-10, the increase is likely to be 66%.
· A 66% increase in kerosene price would keep the share of expenditure on kerosene at the same level as in 2002-03.
· Thus, the price of PDS kerosene could be raised by 66% to reach a level of around Rs. 15/litre without putting undue burden on the poor.
Parikh Committee recommends that issue price of PDS kerosene be raised by Rs.6/litre and should be revised every year in step with per capita agricultural GDP at nominal prices