Subsidy on kerosene & adulteration

P. V. Indiresan

Who benefits from subsidy?

Subsidy on kerosene has given rise to a powerful mafia involved in adulteration and smuggling, as Mr Sonawane's killing brought to light. The best solution would be to raise the price of kerosene and, simultaneously, compensate the poor families who depend on it.

On January 25, Mr Sonawane, Additional District Collector of Malegaon, was doused with kerosene and burnt to death by some members of the kerosene mafia. Mr Sonawane appears to have been a tough character. He hung on to Popat, the principal culprit, so that he too got severe burns and died a week later. The relatives of Popat bitterly complained of a conspiracy to let him die. They had made no comments when Mr Sonawane died.

The Associated Chambers of Commerce and Industry of India (Assocham) has estimated that 38 per cent of kerosene is smuggled to neighbouring countries or misused to adulterate diesel oil. Such misuse is understandable: The subsidised price of kerosene in India is barely a fourth the price of diesel; it is a fraction of what it is in neighbouring countries. That is a readymade scenario for adulteration and smuggling.

NOT FOR THE POOR

Over a dozen years ago, I visited Sunderbans in West Bengal to inspect a photovoltaic lighting system in one of the villages. The village was unbelievably poor. The mud road connecting it was so slippery that I was physically carried there by the villagers. An interesting system of photovoltaic lighting had been installed in the village and I was to report on its utility. In spite of over 50 per cent subsidy, the villagers had to pay Re 1 a day to light a 12W CFL lamp for two hours a day. That came to Rs 40 per unit of electricity, whereas, I, a far richer person, used to pay Re. 1 per unit in those days.

It would have been much cheaper to run a diesel or kerosene generator. “No,” said the villagers, “we will never get the kerosene to run the pump”. They will not get it because all kerosene was being smuggled to Bangladesh. That was the story in West Bengal run by a government dedicated to help the poor. I reported that the subsidy on kerosene did not help the Indian poor; instead, it enriched smugglers in India and in Bangladesh too. The government did not like my report; I became a persona non grata.

WIDESPREAD ADULTERATION

In general, subsidies are not meant to help the poor but to enrich – unlawfully — any number of criminals who also fund politicians. That is why the Petroleum Minister, Mr Jaipal Reddy, has rejected the suggestion that subsidy on kerosene be halted — because that is politically unthinkable. The Minister was not thinking of the poor; he was worried about his own supporters who were funding his party and other parties too. These days, as a reaction to Mr Sonawane's murder, the police are confiscating illegally stored kerosene. All that activity is in Maharashtra and in Maharashtra alone. News reports talk of unearthing a thousand litres of illegally stored kerosene. Two questions arise: Is kerosene adulteration a monopoly of Maharashtrians alone? Even if Assocham has exaggerated its estimate of misuse of kerosene, there should still be millions of litres of illicit kerosene.

Then, why the hullabaloo about detecting a thousand litres of kerosene? The whole episode is an eyewash designed to throw dust into the eyes of the unsuspecting public and to feed gullible media with irrelevant information. There are also reports of arrests of smugglers. Considering that so little action has been taken in similar cases in the past with decades wasted in lethargy, it is doubtful whether even the murderers of Mr Sonamane will be made to pay for their crimes. In any case, there is no point in catching smugglers or adulterators when the system is designed to help them. We need a change of policy which will render such criminal activity unattractive.

QUADRUPLE PRICES

The main issue is to reconcile the need for low-cost fuel for the poor on the one hand, and bridge the price disparity between kerosene and diesel, on the other. The Delhi government has proposed a scheme to provide cooking gas connections to families below the poverty line, with the initial cost borne by oil companies as part of their corporate social responsibility programme. Such a scheme may work in a city like Delhi where the poor may use kerosene for cooking and have electricity for lighting. However, the main problem is in our villages, where the poor use kerosene only for lighting and not for cooking. Hence, the problem reduces to ensuring cheap fuel for lighting in villages.

We need to increase kerosene prices by at least four or five times if we want to halt its misuse. Naturally, that will raise a hue and cry. In view of the political trouble in Tunisia, Egypt, Jordan and Yemen, oil prices have skyrocketed. Hence, petrol and diesel prices have to be raised, and along with them kerosene prices too will have to be raised even higher than four or five times. It is the kind of situation that even the most popular politician would shudder to attempt. Unfortunately, if that is not done now, the situation will actually become worse.

COMPENSATE THE POOR

Under the circumstances, the best course of action is perhaps to raise the prices of kerosene and simultaneously compensate poor families who depend on it. A cash payment to BPL families who do not have any electricity connection, that will compensate the increase in cost of kerosene, should do. Do we have politicians who have that kind of foresight? Twenty years ago, our politicians did have the courage to give up doctrinaire socialism and open up the Indian economy. Our Prime Minister was the prime implementer of that bold programme. Can he once again show courage by raising kerosene prices and compensating the poor?

 THE HINDU BUSINESSLINE newspaper. February 7, 2011: