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A fine balance: Lessons from India's experience with petroleum subsidy reforms

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  • Jain, Anil K.

Abstract

India's energy sector is passing through a significant transformation, triggered by recent international developments in global oil prices. Historically, diesel, kerosene and Liquefied Petroleum Gas (LPG) have been subsidised leaving a small net balance from petroleum taxes for the government, and poor financials for the oil companies. However, all this changed when crude prices declined from over $100/barrel in June 2014 to $50/barrel in June 2017. Concurrent reforms undertaken by the government have radically reduced subsidies from $24.6 billion in 2013 to just $1.16 billion in 2017. This paper shows how reforms involved the strategic application of three different policy 'levers' – retail prices, tax rates and subsidies – with beneficial outcomes for the three main stakeholders – oil companies, the government, and the poorest consumers – the latter through keeping subsidies intact for LPG and kerosene which are used by the poor. It examines policy interventions by the Indian government across these different levers at different points of time. The analysis reveals that petroleum subsidy reform involves much more than simply raising retail prices. The paper brings out policy recommendations from the Indian experience for countries that wish to implement structural reforms in pricing, taxation and subsidies.

Suggested Citation

  • Jain, Anil K., 2018. "A fine balance: Lessons from India's experience with petroleum subsidy reforms," Energy Policy, Elsevier, vol. 119(C), pages 242-249.
    • Handle: RePEc:eee:enepol:v:119:y:2018:i:c:p:242-249
    DOI: 10.1016/j.enpol.2018.04.050
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    Cited by:

    1. Ghosh, Probal P., 2022. "Impact of India's diesel subsidy reforms and pricing policy on growth and inflation," Energy Economics, Elsevier, vol. 113(C).
    2. Ordonez, Jose Antonio & Jakob, Michael & Steckel, Jan Christoph & Ward, Hauke, 2023. "India's just energy transition: Political economy challenges across states and regions," Energy Policy, Elsevier, vol. 179(C).
    3. Saeed Solaymani, 2021. "Energy subsidy reform evaluation research – reviews in Iran," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 11(3), pages 520-538, June.
    4. Dehghan, Hamed & Amin-Naseri, Mohammad Reza, 2022. "A simulation-based optimization model to determine optimal electricity prices under various scenarios considering stakeholders’ objectives," Energy, Elsevier, vol. 238(PC).

    More about this item

    Keywords

    Oil price decline; Petroleum subsidies; Petroleum taxation; India; Fiscal reforms; Developing countries;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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