Subsidy reform in India: Targeting inequity, nudging behaviour - Presentation by Dr Arunabha Ghosh, CEO Council on Energy, Environment and Water

1. Subsidy reform in India
Targeting inequity, nudging behaviour
Dr Arunabha Ghosh
CEO
Council on Energy, Environment and Water
OECD Aligning Policies for Transition to a Low-Carbon Economy
Bogor, Indonesia 4 November 2015
© Council on Energy, Environment and Water, 2015
STRICTLY NOT FOR CIRCULATION

2. CEEW: one of South Asia’s leading think-tanks
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3. Energy access is a primary driver of policy
2SOURCE: CEEW/ Jain et al (2015)

4. • 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?
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38%
34%
23%
12%
0%
10%
20%
30%
40%
Petroleum subsidy as share of direct central
subsidy
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
-
10,000
20,000
30,000
40,000
50,000
2011-12 2012-13 2013-14 2014-15
Million(USD)
Crore(INR)
Energy Subsidy in India
Power (State subsidy) LPG Kerosene
SOURCE: Compiled from multiple sources by CEEW

5. Who benefits?
4SOURCE: Ghosh and Ganesan (2015); CEEW/ Jain et al (2014); CEEW/ Jain & Ramji (forthcoming)
15%
47%
38%
0%
20%
40%
60%
80%
100%
All India
Share of LPG subsidy to income groups
Top 20%
Middle 50%
Bottom 30%
22%
46%
52%
44%
26%
9%
0%
20%
40%
60%
80%
100%
Rural Urban
Share of kerosene subsidy to income groups
Top 20%
Middle 50%
Bottom 30%

6. • 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?
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7. • 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?
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8. THANK YOU
http://ceew.in
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