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Adding fuel to the subsidy fire PDF Print
Written by Indicus Analytics   
Thursday, 06 January 2011 03:48
The benefits of subsidised LPG fail to trickle down to low-income households in India

Just about 40 per cent of the population in developing countries has access to modern cooking fuels — these are electricity, kerosene, natural gas and liquefied petroleum gas (LPG), with LPG and natural gas being most widely used. According to the United Nations Development Programme estimates, almost three-fourths of those who use solid fuels for cooking live in Asia, with India and China accounting for 27 per cent and 25 per cent of this segment. Lack of access to modern fuels for cooking has a significant impact on health since burning of solid fuels like wood, charcoal, dung and straw results in indoor pollution and also imposes socio-economic costs such as time spent on fuel collection by women.

The District-Level Household and Facility Survey (DLHS-3) 2007-08 results showed that in India, the highest dependence is on wood, with 65.4 per cent of rural households and 26.5 per cent of urban households using wood as cooking fuel. Less than a quarter of households use LPG, and usage is heavily weighted in favour of urban areas. In rural India, less than 10 per cent of households had access to LPG. On the other hand, in urban areas a little more than 57 per cent of households used LPG.(Click for table
State-wise disparities in the use of LPG as cooking fuel are huge. In five states, less than 10 per cent of households use LPG as cooking fuel — these include Bihar (4.9 per cent), Chhattisgarh (8.2 per cent), Jharkhand (6.3 per cent), Meghalaya (6.7 per cent), and Orissa (5.5 per cent). Tripura (10.4 per cent) and Uttar Pradesh (10.3 per cent) are marginally better. There are just four states/Union Territories where more than half the households use LPG — these are Daman and Diu (51.5 per cent), Goa (60.3 per cent), Delhi (84.3 per cent) and Chandigarh (86.1 per cent). The use of electricity for cooking is negligible, while kerosene accounts for less than 2 per cent of households in India.(Click for graph)

Though the number of LPG consumers has risen from 84.5 million households in 2004-05 to an estimated 111.3 million by September 2009, the Rajiv Gandhi Gramin LPG Vitrak Yojana launched in 2009 aims to cover 75 per cent of the population by 2015. This will increase access of rural households to subsidised LPG. As the Kirit Parekh Report on pricing petroleum products points out, one of the main reasons for government intervention in pricing is to provide merit goods like natural gas, LPG and kerosene to replace biomass cooking fuel; and sale of subsidised domestic LPG cylinders constituted 86.5 per cent of total LPG sale in 2008-09. However, according to the Report, in 2004-05, only 2 per cent of households with lowest consumption expenditures in rural areas used LPG as a cooking fuel; this share was 33.5 per cent in the highest decile. In urban areas, the share of households using LPG for cooking was 8.6 per cent in the lowest consumption expenditure decile and 82 per cent in the highest decile. So, even as the rising fuel subsidy bill has caused much concern, it is clear that the benefits of these subsidies are currently going largely to high-income households. In such a scenario, a subsidy mechanism that targets the lower-income groups more effectively is imperative.

Indian States Development Scorecard is a weekly feature by Indicus Analytics that focuses on the progress in India and the states across various socio-economic parameters