PDS Kerosene: Assisting The Poor or Serving The Rich?

PDS KEROSENE: ASSISTING THE POOR OR SERVING THE RICH?

                                                                        Bhamy V. Shenoy

Most informed people know about the rampant misuse of PDS kerosene. Many studies have conclusively proved that PDS kerosene strategy of the government instead of assisting the poor ends up serving the rich and politically connected. There are two main reasons for the continued dependence on PDS kerosene. The first reason is the strong lobby of those dealers, officials and bureaucrats who have made a fine art of diverting PDS kerosene for blending purpose to earn obscene profit from the pricing umbrella given for the competing petroleum products. The second reason is the genuine desire on the government to serve those who are below the poverty line, but do not know more efficient ways of serving them. In mid 90s, a Mysore based consumer NGO, Mysore Grahakara Parishat had successfully developed and convinced the government to implement a coupon based distribution. This was almost foolproof and eliminated the diversion of PDS kerosene. Recently the planning commission has proposed a high tech smart card to achieve the same goal.

When crude oil price is $60 per barrel, cost of kerosene is Rs 23 per liter as shown below:

As shown in the above table on the sale of each liter of kerosene, the government has to dole out a subsidy of  Rs. 14.00 to the oil marketing company.. Total amount needed for this program is about Rs 16,500 crores per year. Various studies have showed as much as 40% to 50% of PDS kerosene does not reach the intended beneficiaries and at least 30% is diverted to blend into diesel and petrol. This results in a total loss of Rs. 7500 crores per year due to subsidies being enjoyed by non-beneficiaries. This will result in rampant corruption at different levels. Another loss is caused by diverting kerosene to blend into petrol and diesel. This will result in an annual loss of Rs. 6500 crores.

Mysore Grahakara Parishat after studying the marketing of kerosene through PDS, recommended to Karnataka government a novel system of implementing a coupon system. At the beginning of the month, each beneficiary is given coupons to buy budgeted amount of kerosene. The dealer should sell kerosene to only those with the coupons. Next month, the dealer is supplied kerosene based on the coupons he has collected from the beneficiaries. If he has sold kerosene in black market or diverted for other use, his next month’s supply will be reduced accordingly since he will not have coupons for such sales. Thus a dealer can divert the sale only once and his quota is decreased automatically. Though the idea was accepted by the bureaucracy and few progressive political leaders, there was resistance to implement the scheme.

However one progressive MLA implemented it in his constituency of K.R. Nagar near Mysore and it was a great success. There were no lines of consumers to secure kerosene. It was dealers who were waiting for the consumers to come and take their quota of kerosene. Seeing the success in a small town, deputy commissioner of Mysore decided to implement the coupon system in the city where it was a success again. However after few months, with the change in leadership and strong lobbying by kerosene dealers and politicians belonging to all parties, coupon system was slowly dismantled.

In fact the government need not depend upon PDS shops at all to sell kerosene. If any dealer is allowed to sell kerosene just like edible oil today, then kerosene can be distributed even more efficiently. Subsidy amount could be reduced considerably also. Coupons can be given to those who are below the poverty line and they can use those coupons at any shop to buy kerosene and value of the coupon will be printed on it. Then consumers will go to those shops where they can maximize their purchase amount. Thus the government can also get out of the business of setting and monitoring the PDS shops. Like currency note, there is always the risk of counterfeiting the coupons. This is a manageable risk.

There will be a huge resistance to either the old coupon system or the modified coupon system by all political parties. For the modified coupon system to work, there has to be a policy change by the center to liberalize petroleum product trading. But the old coupon system can be applied at a city or district or state level selectively.

Today the PDS in general and kerosene in particular is a huge cash cow to distribute largesse among the grassroots workers. Therefore the current system which is generating blackmoney to the tune of Rs. 23,000 crores will not be easy to be replaced. But any political party or leader who can bring about the reform along the suggested line will be contributing significantly to remove corruption and also help the real needy.