Fuel Subsidy Reform in Developing Countries: Direct Benefit Transfer of LPG Cooking Gas Subsidy in India

Neeraj Mittal, Anit Mukherjee and Alan Gelb
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Neeraj Mittal: World Bank
Alan Gelb: Center for Global Development

No 114, Policy Papers from Center for Global Development

Abstract: As shown by international experience, efforts to reform energy subsidies have a mixed record of success. This paper provides a detailed picture of the India’s reform of household subsidies for the purchase of LPG cooking gas—the largest cash transfer program in the world. From all available evidence the reform has been a success, both in reducing leakage and diversion of LPG to the commercial market and in improving the quality of service for legitimate beneficiaries. The paper documents the process of implementation, especially de-duplication of beneficiary lists, elimination of price subsidies by direct transfers to bank accounts, and the use of Aadhaar, India’ biometric ID program, to improve access to poor and rural beneficiaries, especially women. Lessons for other countries include: (i) clearly articulating reform objectives helps to build strong political support; (ii) capping consumption of subsidized cylinders together with removal of market price distortion reduces black marketing and improves quality of service delivery; (iii) information campaigns and social media can encourage self-targeting and “nudge” the wealthy to opt out of the subsidy; and (iv) using information technology and digital ID, or Aadhaar, eliminates duplicates and provides fiscal space to target subsidies and expand access to clean cooking fuel for poor rural households, especially women.

Pages: 38 pages
Date: 2017-12-21
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Persistent link: https://EconPapers.repec.org/RePEc:cgd:ppaper:114

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