Subsidy reform in India
Targeting inequity, nudging behaviour
Dr Arunabha GhoshCEOCouncil on Energy, Environment and Water
OECD Aligning Policies for Transition to a Low-Carbon EconomyBogor, Indonesia 4 November 2015
© Council on Energy, Environment and Water, 2015
STRICTLY NOT FOR CIRCULATION
CEEW: one of South Asia’s leading think-tanks
2
Energy access is a primary driver of policy
3 SOURCE: CEEW/ Jain et al (2015)
• Petrol and diesel subsidy was removed in June 2010 and October 2014, respectively
• Subsidy on power is governed by states, and varies significantly across states
How large are energy subsidies in India?
4
Actuals 2012-13
Actuals 2013-14
Revised 2014-15
Budget 2015-160%
10%
20%
30%
40%38%
34%
23%
12%
Petroleum subsidy as share of direct central subsidy
2011-12 2012-13 2013-14 2014-15 -
5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Energy Subsidy in India
Power (State subsidy) LPG Kerosene
Cror
e (IN
R)
Milli
on (U
SD)
SOURCE: Compiled from multiple sources by CEEW
Who benefits?
5 SOURCE: Ghosh and Ganesan (2015); CEEW/ Jain et al (2014); CEEW/ Jain & Ramji (forthcoming)
All India0%
20%
40%
60%
80%
100%
15%
47%
38%
Share of LPG subsidy to income groups
Top 20%Middle 50%Bottom 30%
Rural Urban0%
20%
40%
60%
80%
100%
22%
46%
52%
44%
26%9%
Share of kerosene subsidy to income groups
Top 20%Middle 50%Bottom 30%
• Petrol subsidy was removed in June 2010– Annual saving of ~ USD 1 bn
• Diesel was de-regulated in October 2014– Annual saving of ~ USD 10 bn
• In 2014-15, GOI implemented the world’s largest cash subsidy transfer scheme (DBTL) to improve the efficacy of LPG subsidy distribution
– 144 million consumers enrolled in a span of six months (~90% of active consumer base)
– Expected annual saving ~ USD 1-2 bn– Provides foundation for further reforms
• #GiveItUp – A government campaign, to urge LPG users who can afford to pay the market price to voluntarily surrender their subsidy
– 4 million LPG users has given up their subsidy since the launch of scheme on 27 March ‘15
– Saving are directly linked to provide more subsidised connections to deserving population
• Clean energy cess on coal – National Clean Energy Fund– Currently at INR 200 per tonne of coal (quadrupled since July 2014)
What reforms with what impact?
6
• Power– 100% metering of domestic and agricultural connection– Progressively reducing the gap between cost of supply and average tariff
charged
• Kerosene– Government is considering introducing DBT for PDS kerosene– Need to slowly phase out subsidy on kerosene, and provide households
with alternatives to meet the same end needs in a better manner
• LPG– Post utilising the full potential of #GiveItUp campaign, there is a need for
mandatory exclusion of well-to-do households
What next for reforms?
7