1. RAHUL KUMAR
ONLY
ONE
SOLUTION
HIMESH PATEL
SUCHIT SHARMA
SHUBHAM PACHAURI

2. OIL & GAS SUBSIDY FOR THE
POOR.
Oh
Really?
Rural
Urban
PDS
Kerosen Coal
e
1% Others
4%
1%
LPG
9%
Firewoo
d and
Dung
Cake
85%
VS
Coal
2%
PDS
Kerosene
8%
Others
7%
Firewood
and Dung
Cake
21%
Rural
VS
PDS
UrbanKerose
Others
1%
ne
39%
Electri
city
94%
Electrici
ty
60%
LPG
62%
LIQUIFIED PETROLEUM GAS
• In FY 2008, Only 8-9% of the rural population
consume LPG as a primary fuel for cooking Vs
62% in Urban areas.[NSSO 2010]
• LPG, is subsidized to meet the fuel requirements
of the poor but it seems
• 76% of LPG subsidy goes to urban areas and
nearly 40% of the LPG subsidy is enjoyed by the
wealthiest 6.75% of the population.
[Chawla et al.,2005]
• Even in urban areas, subsidy is inefficient and
regressive.
PDS
Kerose
ne
5%
Others
1%
PDS KEROSENE
• It is used primarily for lighting purposes .[NSSO
2010]
• Only 1.3% of rural households used it for
cooking VS 8% of urban households.[NSSO 2010]
• In FY 2008, 39% of Rural households used
KEROSENE as primary fuel for lighting VS
5.1% of Urban. [NSSO 2010]
• It is an inefficient and more expensive source
of lighting compared to electricity and causes
indoor air pollution.
We’re running out of OIL.!!

3. Use Of Diesel
Industry
5%
Power
Generation
7%
Subsidies for the POOR:
Misc
Services
9%
Plantation
20%
Transport
59%
DIESEL
• No explicit fiscal subsidy is provided to
Diesel, but the final prices of the product at
the petrol pumps operated by Oil Marketing
Companies(OMCs) are controlled by the
Government.
• The under-recovery on diesel as of
January16,2012, stood at ₹2.95/litre.
• Almost 60% of diesel consumed in India was
in the transport sector of which 54% was
consumed in Road transport sector.[GoI 2010a]
• The consumption of subsidized Diesel by
private vehicle has increased substantially
which is fuelled by the price difference
between petrol and diesel
• The top income quintile received 6 times more subsidy
benefits than the bottom quintile.
• For Diesel and LPG, 65% and 70% respectively of subsidy
benefits accrue to the top two quintiles
• Approximately 1/4th of India’s 1.2 billion people live BPL
and energy access and its affordability plays an important
role for this segment of the population.
• The above said population spends a larger share of their
income on energy needs so changes in fuel prizes affect
them much more than the rich.
Variation Of Income
Below
Poverty
Line
25%
Above
Poverty
Line
75%

4. Subsidies and Upstream Oil
companies
Under-recovery
Domestic LPG &
P D S KEROSENE
• The subsidy provided on the three petroleum
products covers only a part of the difference
between the cost price and selling price, there
by resulting in under-recoveries for the
OMCs.
• Under-recoveries are calculated as the
difference between the cost price and the
regulated price at which petroleum products
are finally sold by the OMCs to the retailers
after accounting for the subsidy paid by the
Government as shown in the figure.
Diesel
Cost
Price
Under
Recovery
Depot
Price
A large part of this under-recoveries is compensated for by additional cash
assistance from National Oil Companies (NOCs). The remaining portion remains
uncompensated to the OMCs.
• The total size of under-recoveries on Petrol, Diesel, PDS Kerosene and LPG in FY 11 was ₹
78,190 crore [PPSE2011a] , which is a significant 1.07% of GDP. [RBI,2011a]
• The graph shows how total under-recoveries to OMCs and specific under-recoveries on
Petrol, Diesel, PDS Kerosene and LPG have varied over the last six years [2005-11].
• In 2010–2011, the burden borne by upstream and downstream companies was ₹30,297 crore
and ₹6,893 crore respectively.
• This not only adversely affects the cash flow and profitability of oil companies but also hinders
the upstream sector from investing in improving and expanding their exploration and
production operations.

5. India Crude Oil Production
Assam/Nag
aland
12%
Rajasthan
14%
Andhra
Pradesh
1%
Others
1%
Offshore
56%
Gujarat
16%
1. India was the fourth largest consumer of oil and
petroleum products after the United States, China, and
Japan in 2011.
3. The majority of imports continue to come from the
Middle East, where Indian companies have little direct
access to investment.
4. India had 5.5 billion barrels of proved oil reserves at
the end of 2012. About 53 percent of reserves are from
onshore resources, while 47 percent are offshore
reserves. Most reserves are found in the western part of
India, particularly western offshore, Gujarat, and
Rajasthan. The Assam-Arakan basin in the northeast
part of the country is also an important oil-producing
region and contains more than 10 percent of the
country's reserves.
Indian Crude Oil Imports
Other
Middle East
10%
Iran
9%
Saudi
Arabia
30%
UAE
14%
Kuwait
16%
Iraq
21%
1. India is also the fourth largest importer of oil
and petroleum products.
2. India has increased its oil imports from about
40 percent of demand in 1990 to more than 70
percent of demand by 2011.
3. Saudi Arabia is India's largest supplier, at
about 19 percent of oil imports; in
total, approximately 64 percent of India's
imported oil came from Middle East countries
in 2012.
4. The second biggest source of imports is
Africa (17 percent), with the majority of that oil
coming from Nigeria.

6. Motor fuel, kerosene jet fuel
Impact of oil subsidies on imports:
and
naphtha EXPORTS
Other
20%
United
States
6%
1. Under-recovery
Singapore
16%
UAE
15%
Japan
7%
South Korea
Taiwan
7%
8%
Bahmas
10%
Indonesia
11%
• A great burden of under-recovery is to be borne by
upstream oil companies which as a net effect
pushes these companies towards financial
crisis, thus decreasing the exploration and
production activities and thus increasing the total
amount of import of oil and gas which in turn
pushes the country toward debt and adverse impact
on the economy.
1. Despite being a net importer of crude oil, India has
become a net exporter of petroleum products by investing
in refineries designed for export, particularly in Gujarat.
Essar Oil and RIL export naphtha, motor gasoline, and
distillate fuel oil to the international market, particularly
to Singapore, the United Arab Emirates, and Indonesia.
2. MisUSE
Under-recovery
due to subsidy
As a result GDP
decreases
Decrease in
exploration and
production
activities
• Large subsidies on valuable oil and gas products promotes
misuse which in turn increases the import.
Oil and Gas
Subsidies
Misuse Of
Subsidies by rich
people
Increase in Import
which increases
the debt and thus
decrease the GDP
of the country
Adverse
Impact on the
economy as
the debt on
the country
increases.
Increase In
imports of oil
and gas

7. Reformatio
n
The political aspect of energy subsidies cannot be ignored. The reason why energy
subsidies are still prevailing in India in the first place is vote bank which cannot be
overlooked. Whenever the issue of removing or reforming fuel subsidies are raised or
any such recommendation proposed by any committee, the government seems to be
reluctant on this issue and is afraid of taking strong decisions.The different kind of
views are grouped under as follows:
Capitalist: This viewset of people believe in
growth, development and profits but not of sharing
them. They know only to take
Although many fuel subsidies
help the rich more than the
poor, we should not loose sight
of the fact that some poor
households depend on
subsidies to make energy
affordable. For these people
expenditure of energy takes up
a larger portion of their budget
than it does for the wealthy.
Communist: This mindset of people believe that no matter how much a
person works hard but money would be distributed equally. They
know only to give.
Democratic: This presents a balance between growth and distribution
of resources. These people maintain a give and take relationship.
But subsidy reform can be designed and implemented in a way
that minimizes the negative impacts on poor households. A • 1. Those that provides assistance to poor
suite of policies have been used by countries around the world households.
to ease the transition away from fuel subsidies. The policies • 2. Those that help the broader community to
understand and support reform.
can be grouped into two categories:

8. Introduction of policies
to support poor
households
Team-SAMARTHYAM
Communicatio
n campaign:
Reform Strategy
Reducing energy subsidies would free of the Government
funds for other purposes. By allocating these funds to
programs that directly target the poor, the government
would redirect money from fuel subsidies to those in need.
There are basically two ways:
Gradual
Phase-out
Monitoring
and
Adjustment
Conditional cash
transfers (CCTs)
Cash transfers
This policy of transferring the money directly to
the beneficiary account has been implemented
successfully internationally. This approach was
adopted in Indonesia during 2005-08 under the
name of BLT program which was accompanied by
short term measure referred to as the Fuel Subsidy
Reduction Compensation Program. These
programs provided targeted support for the affected
groups by increasing social spending in the areas of
education, health and rural infrastructure.
This can be observed in other countries also like
Jordan, supported subsidy reform in 2008 by
increasing the minimum wage and providing a
salary increase to low paid government employees.
The alternative approach to above is to link cash payments to
behaviours that assist community development. In India various
cash transfers schemes have been implemented to support
education and health. At the central level programs like
Dhanalakshami scheme [2008], Janani Suraksha Yojana[2005] and
Balika Samridhi Yojana[1997] have been introduced.

9. Team SAMARTHYAM - Strategy for reformation of Subsidies
Communication
campaign
Reform should be preceded by a
Public Information Campaign
(PIC) highlighting the motivation
for reform. The campaign should
highlight that:
 Fuel subsidies are fiscally
costly.
 Benefits are regressive and
accrue mostly to higher
income groups.
 Subsidies crowd out higher
priority public spending [e.g.
On education, Health, Social
protection and public
infrastructure].
 For example in 2005 the
Indonesian government
implemented a public relations
campaign alongside cash
transfers and social spending
as a means for building
support for Reform.
Gradual
Monitoring and
Phase-out
Adjustment
 A gradual phase-out of
subsidies can give recipients
time to adjust. The longer a
subsidy has been in place, the
more difficult it will be to
remove and the longer the
likely timeframe required for
reform. Subsidies have a
tendency to become perceived
as entitlements and any
attempt to reduce them can be
politically hazardous.
 In December 2010, the
Bolivian government made
sudden and dramatic increases
to the price of subsidized fuel
raising prices by over 80%
with few supporting measures
to ease the transition. The
result was a major public
backlash and a rapid
reinstatement of subsidies by
the government.
 Monitoring and adjusting
reform on an on going basis is
necessary to assess whether
measures have been
effective, check whether there
have been unintended negative
consequences, and adapt
policies over the time.
 Temporary assistance policies
also require careful monitoring
in order to ensure that the
assistance is reaching the
target groups and that support
does not continue that it
becomes entrenched.

10. Team Samarthyam - FOR OR AGAINST Oil Subsidies
• The Integrated Energy Policy which was approved by Cabinet in 2009 provided that fuels that are
tradable(i.e. imported or exported) would be priced in line with global prices. The current regime of
energy subsidies in India is a heavy burden on the government’s resources and has had only limited
success in reaching the intended beneficiaries.
PDS Kerosene- 40% of the fuel being diverted toward non-PDS usage.
LPG- a major part of the subsidies accrue to the richer households, which can afford to pay market prices for
the fuel
Energy subsidies also have significant ecological ramifications due to overuse of petroleum products and
over-exploitation of groundwater resources caused by inefficient consumption of free electricity are
genuine and urgent concerns.
Subsidies also put a lot of pressure on national oil companies and power sector utilities, which face heavy
financial burdens under the current system.
But however, at the same time subsidy reform has to be addressed carefully.
 Because subsidy reforms or changes in fuel prices affect the poorest section of the population most.
 Target groups which are to receive subsidy benefits need to be identified accurately and appropriate measures to
compensate for the loss of welfare from rising fuel prices should be designed carefully.
 A prerequisite to reform is the presence of a high degree of awareness among the people regarding the plethora
of issues surrounding energy subsidies, including an understanding of their overall costs and benefits.
Thus team SAMARTHYAM supports reformation of oil and gas subsidies using
measures as described.