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Jan Kerosene Pariyojana: Impact and Future Policy Responses

Jan Kerosene Pariyojana was launched to revamp the subsidised kerosene distribution measure in the country. Initial impact analysis leads us to believe that the scheme has the potential to realise the intended reforms. This paper attempts to provide a scope for future policy changes to further rationalise the public distribution system by tracking transactions through electronic data capture terminals down the supply chain to the households.

SPECIAL ARTICLEEconomic & Political Weekly EPW february 23, 200867Jan Kerosene Pariyojana: Impact and Future Policy ResponsesTejinder Singh, Rajesh JaiswalJan Kerosene Pariyojana was launched to revamp the subsidised kerosene distribution measure in the country. Initial impact analysis leads us to believe that the scheme has the potential to realise the intended reforms. This paper attempts to provide a scope for future policy changes to further rationalise the public distribution system by tracking transactions through electronic data capture terminals down the supply chain to the households.The government of India (GoI) since 2002 has not in-creased the domestic price of kerosene despite a sizeable increase in international kerosene prices. Taking 2004-05 as average international prices, the total subsidy works out to Rs 8.78/litre. This translates to an annual subsidy of Rs 9,480 crore. It may be noted that the retail selling price of one litre public distribution system (PDS) kerosene in Delhi is Rs 9.05. This substantial price difference between the subsidised PDS kerosene and free salekeroseneprovidesan incentive for black marketing to unscrupulous elements. On all-India basis, in 2005, the National Council of Applied Economic Research (NCAER) estimated the diversion of PDS kerosene to the market and repurchased by households at more thandouble thePDS price at 17.9 per cent of the total sale.Gangopadhhyay et al (2004) in an earlier study estimated the diversion of kerosene fromPDS of the order of 50 per cent on the basis of NSS data 2002. This kerosene diversion varies across states. To mitigate this black marketing of PDS kerosene and to ensure that it reaches the intended beneficiaries, the GoI hastaken certain concrete steps, which could have intended ramifications. These include:(1) The GoI in its Kerosene Order, 1993, issued under the Essential Commodities Act, 1955 has prohibited dealers from selling PDS kerosene at a higher rate than fixed by the Oil Marketing Companies (OMCs). Further, the PDS kerosene deal-ers are required to display kerosene stock-cum-price boards at the site. The state governments are responsible for distributing kerosene throughPDS network and also for implementing the control orders.(2) The GoI has launched Jan Kerosene Pariyojana (JKP) on October 2, 2005 as a pilot project to ensure that the subsidised product reaches the intended beneficiaries in required quantity and to prevent the diversion of PDS kerosene for adulteration.(3) A pilot project is proposed in two districts (one in Bihar and the other in Uttarakhand) of issuing of smart cards to the eligible below poverty level (BPL) families.These two pilot schemes are in various stages of implementa-tion. A review of JKP and a road map for further streamlining the kerosene distribution in the country at this stage is justified as the scheme was last extended till March 31, 2007.We have structured this paper as follows. Section 1 gives an overview ofJKP. Section 2 gives an assessment of the sample household. Section 3 assessesJKP on the benefit and cost estimates from the information provided by the households andOMCs. Section 4 discusses future policy The authors are grateful to an anonymous refree for comments and suggestions.Tejinder Singh ( and Rajesh Jaiswal are with the National Council of Applied Economic Research, Delhi.
SPECIAL ARTICLEfebruary 23, 2008 EPW Economic & Political Weekly68responses for a better kerosene distribution system and the last section concludes. 1 OverviewThe principal features of JKP are: (i) The public sector oil marketing companies (OMCs) have established at least one kerosene dealership in each of the country’s development blocks; (ii) in consultation with the district administration and the wholesale dealer, nearly 5-10 sub-wholesale points are located in each block; (iii) there is a dedicated fleet of tanker-trucks (TTs) for transporta-tion ofPDS kerosene to ensure the widespread public information and transparency, asTTsprominently display the special logo specifically devised for the dedicated fleet. It is clearly displayed on the TT that PDS kerosene is being transported; (iv) to bring storage dispensing services at kerosene dealers at par with the modern services provided at petrol and diesel outlets byOMCs at their expense. The Oil Industry Development Board (OIDB) is funding OMCs for the installation of facilities at each of the dealerships covered under the pilot project (a) storage tanks with a minimum capacity of 20 kilolitres; (b) calibrated dispensing pumps; (c) adequate number of barrels with theJKP logo, for the delivery of superior kerosene oil (SKO) to sub-wholesale points; (d) one or more barrel sheds; (v) supplies from depots ofOMCs to the wholesale and sub-wholesale points are made under the direct supervision and responsibility of theOMCs. They are providing an adequate number of barrels, with theJKP logo, at the sub-wholesale points for convenience and ensure transportation of kerosene to the retail points. The JKP logos are also displayed on vehicles carryingPDS kerosene from wholesale to sub-wholesale and retail points, i e, fair price shops (FPS); (vi) at eachFPS, kerosene is stored in barrels withJKP logos for ensur-ing transparency for the public at that FPS; (vii) in consultation with the state governments, panchayats and gram sabhas are empowered to supervise the availability of PDS kerosene and a reporting mechanism is put in place for panchayats/gram sab-has to report any deficiency to the state administration and the OMCs. Initially, theJKP scheme was proposed in 404 blocks across 24 states. Taking into account the logistics, it was later decided to restrict the scheme to 404 blocks across 15 states. Finally, duetovarious other reasons like litigations, the JKP was imple-mented in 378 blocks in these 15 states with some modifications. Mostof the states have three-tier (whole-saler-sub-wholesaler-retailer)structure, whereas some are following a two-tier (wholesaler–retailer) structure. However, in Maharashtra and Uttar Pradesh both three-tier and two-tier structuresexist in variousJKP blocks (Table1). With the launch ofJKP, the OMCs have created necessary infrastructure like underground tanks, dispensing machines and barrel sheds. They have also provided blue-coloured light commercial vehicles (LCVs)/TTs and barrels to wholesalers, sub-wholesalers and retailers for the ef-fective implementation of the scheme. Panchayati raj institutions (PRIs) are empowered to work as “watch dogs” overseeing kerosene distribution in rural areas at three levels – state, block, and village.PRIs can play an effective role in ensuring accountabil-ity and transparency in the kerosene-distribution system. The major focus is on orientation and capacity-building of all the three levels ofPRIs. PRIsare gradually interactingwiththeOMCs and the state civil supplies departmentsfor kerosene-distribution system. Most of the states have proposedvariouscommittees,and further efforts are being made for the formation of committees to monitor kerosene distribution. 2 HouseholdAssessmentHousehold assessment was achieved through structured survey of household responses in bothJKP and non-JKP blocks in 15 states where the scheme was launched. The survey design for the purpose used the standard methodology which is subsequently described in detail.2.1 Survey DesignSample households for survey were selected using a three-stage sample design with blocks, villages and households as the first, second and third stages, respectively. In order to overcome prob-lems related to the proportional allocation of blocks, states were divided into six different strata depending on the number of blocks underJKP. A preassigned number of blocks was allocated to each sample state so that statistically sound inferences are drawn.A systematic circular sampling procedure was adopted for selecting the required number of blocks from each sample state. TheJKP blocks within a state were arranged alphabetically by district. The required numbers of blocks were selected using a systematic circular sampling with a random start and interval. A neighbouring non-JKP block was also selected at random. In each state, similar numbers ofJKP and non-JKP blocks were selected. In all, 150 blocks each fromJKP and non-JKP areas were selected.Villages formed the second stage of the selection. Villages in a selected block were divided into three stratums, i e, within five kms, five to 10 kms and more than 10 kms. From each stratum, one village was selected at random. In case, no village fellunder stratum 3, then two villages were selected from stra-tum2.However, while selecting villages from non-JKP blocks, villages werestrat-ified only in two strata, less than 10 kms and more than 10 kms. From these strata, one village each was selected at random. In all, 450JKP and 300 non-JKP villages were selected for the study.Households formed the eventual stage of selection. Households were clustered into smaller groups on the basis of di-verse characteristics. Approximately, 120 kerosene-using households were listed in each selected village. However, if number of kerosene-using households was more than 120, the listing of 120 kerosene- using households was done with the help of a sampling fraction. The listed house-holds were classified by the type of ration card in order to select a sample of 20 Table 1: Number of Blocks Where JKP Is ImplementedState Number of Blocks Distribution System ProposedImplemented Andhra Pradesh 88 87 3-tierAssam 34343-tierChhattisgarh 11113-tierGujarat 24243-tierHaryana* 6 6 2-tierJharkhand 13133-tier Kerala 19192-tierMadhya Pradesh 31 23 3-tierMaharashtra 30 30 Both 2-tier and 3-tierMeghalaya 442-tierOrissa 32263-tierPunjab* 106 2-tierRajasthan 14132-tierUttar Pradesh 51 47 2-tier (16 blocks) and 3-tier (31 blocks)West Bengal 37 35 2-TierAll States 404 378 * In Punjab and Haryana, the JKP was implemented in those blocks where the necessary infrastructure already existed.
SPECIAL ARTICLEEconomic & Political Weekly EPW february 23, 200869households from each village. Their share in the total listed households in each village determined the number of households selected by type of ration cardholders. The households were se-lected using a systematic circular sampling, with a random start and a sampling interval, independently for each type of ration card. Thus a total of 15,000 households were selected – 9,000 households fromJKP areas and 6,000 house-holds from non-JKP areas.The fieldwork for canvassing the de-tailed household questionnaire from the households was carried out in March 2006.2.2 ImpactAnalysisLet us now attempt to assess the JKP from the survey household data. Two basic methodo-logies, namely, “before and after” and “with and without” were employed to assess theJKP with “before” and “without” being used as controls to quantify the impact of the scheme.From each of the selected beneficiary, per-formance rating for the timely availability of kerosene atFPS before and after October 2005 was probed. Each household was asked to provide his rating on timely availability of kerosene as good, average or bad. This per-formance rating was collected before as well as after October 2005 from each household. As the ultimate aim wastoimprove kerosene availability at the household level, an index of timely availability of kerosene was calculated for the performance evaluation of the scheme. It is assumed that a household would take into account all the other factors before specifying its rat-ings in terms of good, average, and bad on the availability of kerosene. Assigning a score of 1, 0, and -1 atthehouseholdlevel for the “good”, “average”, and “bad” ratings, respectively, we calculate the index for purposes of comparison.Thus,ahouse-hold that reported the availability of kerosene as good is as-signed a score of 1, while a household that reported the availa-bility of kerosene as bad is assigned a score of -1. Thus the score for all households before and after October 2005 is assigned. An Average Kerosene Distribution Performance Index (AKDPI) is calculated from these scores at the following level of aggre-gation: distance group, card type and state as a whole.The AKDPI is calculated for bothJKP and non-JKP areas, it ranges between -1 (if all households give a bad rating) to 1 (if all households give a good rating). A positive change of scores be-tweenJKP and non-JKP areas indicates a relatively better kero-sene distribution inJKP areas as compared to non-JKP areas. Similarly, a negative change of scores indicates relatively better kerosene distribution in the non-JKP areas. TheAKDPI for JKP areas after October 2005 is 0.39 and for non-JKP areas it is 0.28, suggesting relatively better kerosene distribution inJKP areas compared to non-JKP areas. If we examine the state-levelAKDPI, we notice that a positive change of scores is statistically quite sig-nificant for Andhra Pradesh, Jharkhand, Orissa and Rajasthan. This implies that kerosene distribution is better inJKP areas as compared to non-JKP areas. Contrarily, a negative change in the states of Gujarat, Haryana and Punjab imply that kerosene distri-bution is better in non-JKP areas as compared to its counterparts. This could probably be due to teething problems encountered with the launch of the scheme. However, it should be noted that while looking at an overall picture, the AKDPI for JKP areas has increased from 0.28 before October 2005 to 0.39 after October 2005,implying an improvement of 0.11 points (Table 2). It has been observed that an improvement in the kerosene-distribution system is quite pronounced through the adoption of a “with and without” methodology of impact assess-ment. A similar inference can also be drawn on the basis of a “before and after” methodo-logyof impact assessment at the aggregate level. Employing this methodology, theAKDPI for JKP area has improved from 0.28 to 0.39 whereas, in non-JKP areas there is a marginal improvement inAKDPI from 0.26 to 0.28, an improvement of 0.02 points. This implies that the scheme has spillover benefits in terms of improved kerosene distribution in the adjoining areas at the aggregate level. Thus theJKP has led to an improvement in AKDPI in bothJKP and non-JKP areas, though the improvement in the JKP areas is more pronounced than in non-JKP areas (Table 3). Across DistanceLet us assess the impact ofJKP across distance. For assessing this impact, we had grouped into three distance slabs from the whole-saler or sub-wholesaler, i e, up to five kms, from five to 10 kms and more than 10 kms, accordingly the AKDPI was estimated to be 0.02, 0.12 and 0.10, respectively. This implies that impact of scheme is more in distanced villages as compared to the nearby areas. The probable reason can be attributed to the fact that usually the PDS in nearby areas is better than the distanced Table 2: Average Kerosene Distribution Performance Index after October 2005States JKPNon-JKPDifferences Areas Areas between JKP and Non-JKPAreasAndhra Pradesh 0.62 0.21 0.41Assam 0.370.290.08Chhattisgarh 0.310.230.08Gujarat 0.640.67-0.03Haryana 0.380.49-0.11Jharkhand 0.730.590.14Kerala 0.550.500.05Madhya Pradesh 0.05 0.01 0.04Maharashtra 0.790.510.28Punjab 0.150.34-0.19Rajasthan 0.58 0.260.32Uttar Pradesh 0.28 0.22 0.06West Bengal 0.21 0.19 0.02All states 0.39 0.28 0.11Table 3: AKDPI Before and After Launching of JKPStates JKPNon-JKP Before AfterChangeBefore AfterChange October 2005 October 2005 in AKDPI * October 2005 October 2005 in AKDPI *Andhra Pradesh 0.44 0.62 0.18 0.44 0.21 -0.23Assam 0.170.370. 0.170.310. 0.670.64-0.030.660.670.01Haryana 0.390.38-0.010.420.490.07Jharkhand 00.730.730.040.590.55Kerala 0.520.550.030.50.50Madhya Pradesh -0.1 0.05 0.15 -0.01 0.01 0.02Maharashtra 0.260.23- 0.230.22- 0.510.790.280.320.510.19Punjab 0.170.15- 0.60.58 - Pradesh 0.25 0.28 0.03 0.23 0.22 -0.01West Bengal 0.19 0.21 0.02 0.17 0.19 0.02All states 0.28 0.39 0.11 0.26 0.28 0.02* Positive change implies improvement and negative change implies deterioration of AKDPI.

As regards awareness regarding kerosene entitlement, at an aggregate level more than 8 per cent sample households have acknowledged increased awareness levels. This indicates the fact that awareness about entitlements has to disseminate across society through both formal and informal channels of communication. If we examine the state-level data, we observe that Rajasthan has been the front-runner in spearheading the awareness campaign where nearly 25 per cent reporting households in Rajasthan have conceded that “awareness regarding kerosene entitlement” from

has increased after the launch of the scheme. In Assam, Chhattisgarh and Orissa more than 10 per cent of the reporting households have conceded that awareness regard ing kerosene entitlement has increased in areas (Table 7).

Responses regarding the constitution of limited number of monitoring committees is due to the fact that they were in the process of being formalised in nearly all the sample states during the survey period. Moreover, there was some confusion regarding constituting the new committees or extending the sphere of existing monitoring committees to monitor the kerosene distribution. A notification from the respective state governments to extend the sphere of existing committees would empower the s at one stroke and could have a favourable impact on kerosene distribution.

SPECIAL ARTICLEfebruary 23, 2008 EPW Economic & Political Weekly72available in relative affluent households and poverty. Other rea-sons include retailers denying entitlements to some of the house-holds for either non-possession of the ration card or non-availa-bility of kerosene during the said month.Other problems like kerosene supplies not distributed on fixed and specified days, throughout the day, throughout every month;distribution in instalments; and distribution on a weekly basis. Prominent states reporting these kinds of problems are Assam, Chhattisgarh, Gujarat, Haryana, Jharkhand, Kerala, Meghalaya, Orissa, Punjab and Rajasthan. In fact, one of the main suggestion by the households is that kerosene should be distributed on fixed days. We now, turn to these suggestions in our next section.2.3 Suggestions of Households Suggestions provided by households in the JKP blocks are mainly about increasing entitlements, fixation of days and time for kerosene distribution, and revising the basis of entitlements to family size rather thanLPG usage (Annexure, p 76). Sugges-tions clubbed under “other category” include improvements in behaviour ofFPS owner, effective redressal mechanism, peo-ples involvement in kerosene distribution and uniform kero-sene entitlements across the state – this in fact is officially true, but lack of awareness among masses has led to a situation where different entitlements are distributed within the state. The percentage distribution of these responses as provided in Table 8. Of these, suggestion regarding distribution of kero-sene is significant as this would bring about lot of certainty into the distribution. A pilot study sponsored by the ministry of petroleum and natural gas would help us understand better the requirements of the consumer with respect to time prefer-ence and other aspects.On the whole, the impact analysis reveals that kerosene distri-bution is relatively better in theJKP areas as compared to the non-JKP areas. Let us now evaluate the benefit and cost associated with the scheme.3 BenefitCostEstimatesIn Section 2, we had presented the achievement of JKP on differ-ent objectives of the programme. We also had stressed that the evaluation in this study followed immediately after the launch of the programme with the advantage that any correctives needed to make the programme more effective can be applied quickly. However, any attempt to examine the costs and benefits of the programme at this stage is likely to be partial as some elements of the costs and benefits are likely to be achieved over a long-term period. With this important qualification of the analysis, we present here a quantitative assessment of the costs and an important benefit of theJKP scheme. On the cost side of the programme we have received the esti-mates of costs incurred by three major oil companies Indian Oil Company (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL), on implementing theJKP. The information is with reference to the capital expenditure in setting up the infrastructure, providing the specially painted barrels and setting up a vehicle tracking system. The two companies have provided the data on these costs in the areas where they are operating the JKP. This information reflects per block expenditure of the JKP.On the benefit side, the most important objective of the JKP scheme is better targeting of kerosene subsidy towards its in-tended use. We focus our analysis on this indicator. The survey provides an estimate of the leakage in terms of quantity not lifted by a household from its entitlement in the last six months before and after the introduction of the scheme. The selected households inJKP villages were asked to indicate whether they withdrew their entire quota of kerosene during the period (April 2005-September 2005), i e, before and after the intro-duction of the scheme (October 2005-March 2006). They were asked to indicate the total quantity not lifted for the period of six months before and after the introduction of the scheme. This information provides the basis for an estimate of improve-ment in the targeting ofPDS kerosene after the implementation of JKP.However, this information reflects only an immediate impact ofJKP. Over time the impact may be greater as the im-plementation can be improved. It is important to keep in mind this limitation as we compare the costs and benefits of the programme. Another important point to note is whether there is reduction in diversion of kerosene from domestic usage to other uses. The present study was not designed to provide this estimate.3.1 BenefitEstimates An analysis of the data at the aggregate level reveals a total reduction in the leakage to the tune of 523 ml per household in theJKP areas during six months after launching the scheme. This reduction in leakage has resulted from better awareness and improvement in the availability of kerosene withFPS, involve-ment of panchayats wherever it has been possible and so on. An implication of this improved targeting is that the subsidy expenditure is better spent. An estimate of the magnitude of this Table 8: State-wise Suggestions Reported by Households to Improve Kerosene Distribution System in JKP (in %)State KeroseneKeroseneOtherKeroseneOthersTotal EntitlementShouldbeDistributionEntitlement Should Distributed Related Should be on Increase on Fixed Days Improvement the Basis on Suggestions Number of Units Andhra Pradesh 29.8 58.2 4.4 2.9 4.7 100.0Assam 18.7 14.426.08.1 32.8100.0Chhattisgarh 24.4 28.2 14.7 0.0 32.7 100.0Gujarat 29.314. 8.8 5.9 2.9 0.0 82.4100.0Jharkhand 5.5 10.9 18.20.0 65.5100.0Kerala 45.87.9 13.60.0 32.7 100.0Madhya Pradesh 18.0 6.4 24.5 6.7 44.5 100.0Maharashtra 20.4 9.7 28.8 12.828.3100.0Meghalaya 30.618.021.6 2.727.0100.0Orissa 11.21.8 10.32.4 74.3100.0Punjab 14.311. 43.913. Pradesh 26.6 15.1 15.8 10.9 31.6 100.0West Bengal 49.0 7.3 21.6 1.3 20.8 100.0All sample states 25.8 13.9 19.1 6.2 35.0 100.0
SPECIAL ARTICLEEconomic & Political Weekly EPW february 23, 200873benefit can be obtained based on the estimated reduction in the leakage and per unit subsidy. To calculate the value of benefit of JKP in terms of amount of improved targeting of subsidy, we use the following method:(1) Average population per block in the selected states is worked out as per Census 2001.(2) Number of households per block is obtained by dividing the population by the household size obtained from the Impact As-sessment Survey of Jan Kerosene Pariyojana (2006) in the se-lected states.(3) The reduction in leakage per household, obtained from the present survey, is multiplied by the number of households in a block to estimate the improved targeting per block. Total annual reduction in the quantity of leakages per block in the JKP areas is worked out assuming the same proportion of reduction for an-other six months.(4) This annual quantity of leak-age reduced per block is then multiplied by the per litre kero-sene subsidy (2004-05) to obtain the value of better targeting of subsidy per block.(5) State-wise average monthly quota of JKP blocks obtained from state-level coordinator (SLC) is converted to average yearly quota of kerosene per block in JKP areas.(6) Improved “subsidy targeting” per litre due to JKP scheme is then worked out by dividing the total amount of improved subsidy targeting per JKP block by the kerosene quota per block.Estimated reduction in leakage per household inJKP blocks dur-ing the six months period after the launching of the scheme in the selected states is provided in (Table 9).There is indeed a variation in the extent of better targeting of subsidies across the states. Re-duction is greatest in Maharash-tra followed by Orissa, Chhattis-garh and Assam. The reduction is the least in Uttar Pradesh, West Bengal and Jharkhand. The vari-ation may arise from many rea-sons including the variation in the manner in which the scheme is implemented. We should also note that since the present study was carried out immediately af-ter the launching of the scheme, the establishment of logistics of the programme may have taken moretimeinsomestatesas compared to the others; involvement of panchayats has also var-ied across states. Assuming that the trend observed in the first six months of the programme will continue for another six-month period, the re-duction in total leakage of kero-sene in kilolitres per year perJKP block was calcu-lated (Table 10). We recognise that this reduc-tion may have been more in the subsequent six months than in the first with the strengthen-ing of capacity to implement the scheme over time. But be-cause of lack of any objective basis to make an assessment of this improvement, we have used the same level of reduction observed in the first six months to be real-ised in the subsequent six months also.These quantities of leakages saved were multiplied by the subsidy per litre of kerosene (available for 2004-05) to obtain the total amount of better targeting of subsidy per JKP block. Based on the total value of “better targeted subsidy” and the quantity of kerosene supplied to PDS, we obtain a measure of “improved targeting of subsidy” per litre of kerosene sold (Table 11).Thus, at the aggregate level, an average subsidy of 21 paise per litre is found to be better targeted inJKP blocks. The impact is highest in Maharashtra, Assam and Punjab. It is the lowest in Uttar Pradesh, West Bengal and Jharkhand. Thus, although reduction in leakage per household is greater in Orissa than Punjab, the “savings in subsidy” per litre of kerosene sold through PDS is higher in Punjab, because allocation itself is lower in Punjab per block. We can, therefore, say that there is a better targeting of subsidy under the JKP scheme. An additional 1,633 kilolitres of kerosene was purchased by the households from the PDS under theJKP and hence was prevented from being diverted to the market. However, we should note that the estimated diversion from thePDS was much higher at about 38 per cent of kerosene sold. The improved targeting here works out to less than 2.2 per cent of the allocated quota for PDS. Are the benefits small? We shouldnote that the scheme was in operation for just six months when the present study was conducted. And also that what is capturedin the present study is the increased lifting of kerosene fromPDS by households for their use. We have not captured the Table 9: Reduction in Quantity of Kerosene Leakage (Litres) per Household in JKP BlocksState Name Reduction in Leakage per Household(Litres)Andhra Pradesh 0.677Assam 0.788Chhattisgarh 0.803Gujarat 0.575Haryana 0.508Jharkhand 0.100Kerala 0.137Madhya Pradesh 0.266Maharashtra 1.459Meghalaya 0.600Orissa 0.815Punjab 0.549Rajasthan 0.199Uttar Pradesh 0.046West Bengal 0.055All sample states 0.523In the case of Andhra Pradesh and Rajasthan indirect estimates were used as the direct responses in the survey appeared abnormal.Table 10: Annual Quantity of Leakages Saved per Block in JKP AreasState Total Leakage of SKO Annually Saved (kilo litres) Per JKP BlockAndhra Pradesh 20.77Assam 49.86Chhattisgarh 41.54Gujarat 45.20Haryana 34.80Jharkhand 36.62Kerala 12.18Madhya Pradesh 18.82Maharashtra 145.92Meghalaya 119.64Orissa 30.67Punjab 29.29Rajasthan 37.80Uttar Pradesh 2.43West Bengal 3.54All sample states 28.81SKO is superior kerosine oil.Table 11: Estimation of State-wise Improved Subsidy Targeting under JKP: Rs per LitreState Name Amount of Average Yearly Improved Improved Subsidy Quota of SKO Targeting of Targeting in in JKP Areas Subsidy in JKP JKP Areas (KL) per Block Areas Rs (‘000) per Block (Rs per Litre)Andhra Pradesh 199.4 1008.0 0.20Assam 478.6 902.5 0.53Chhattisgarh 398.8 1107.3 0.36Gujarat 433.9 2055.00.21Haryana 334.01296.00.26Jharkhand 35.21314.50.03Kerala 117.01840.20.06Madhya Pradesh 180.7 2013.4 0.09Maharashtra 1400.8 1874.9 0.75Meghalaya 114.92224.80.05Orissa 294.51298.30.23Punjab 281.2 806.0 0.35Rajasthan 362.91982.80.18Uttar Pradesh 23.4 1998.6 0.01West Bengal 34.0 2264.9 0.02All sample states 276.6 1633.1 0.17
SPECIAL ARTICLEfebruary 23, 2008 EPW Economic & Political Weekly74reduction in diversion of kerosene for non-domestic usage since the launching of the scheme.3.2 CostEstimates Benefits are one side of the programme. The other side is its cost of implementation. While the benefits are shown in terms of bet-ter targeting of the subsidies, the costs are in terms of capital ex-penditure towards infrastructure for the underground storage tanks at the wholesale or sub-wholesaler points, barrels and so on. In principle, we should also take into account the costs such as the involvement of PRIs and other officials involved in the scheme. However, no comprehensive estimate of the costs is available.The state-wise data on the cost of implementation of JKP that has been made available to us is under three heads, i e, for capitalexpenditure(con-sisting of underground tanks, dispensing machines and barrel sheds) along with expenditure on barrels and expenditure on vehicle tracking system were provid-ed byBPCL andHPCL.1 Based on this in-formation we calculated the equated an-nualised cost forJKP blocks under the following assumptions:(1) A life period of 15 years for capital ex-penditure.(2) A life period of three years for barrels.(3) A life period of five years for GPRS.(4) Annual rate of interest of 9 per cent to reflect the opportunity cost of capital.The annualised cost for capital ex-penditure, barrel expenditure andGPRS are worked out separately and total annualised cost is calculated by aggregating these costs. The state-wise annualised cost is then divided by the number of JKP blocks to obtain the average cost perJKP block. The state-level coordinators, during the course of the study provided the state-wise monthly quota of kerosene in kilolitres and the number of JKP blocks. The average monthly quota per JKP blocks is worked out and then annualised in litres. The estimated state-wise cost per litre of kerosene byJKP block is then worked out by taking the ratio of state-wise average cost per JKP block and state-wise average annualised quota of kerosene per JKP blocks. The cost per litre is only one way of normalising the findings. If allocations increase, cost per litre may be lower un-less more expenditure is incurred on infrastructure (Table 12).At the aggregate level, a cost of 12 paise per litre is incurred on providing the basic infrastructure for JKP. The cost per litre is found to be highest in Chhattisgarh (25 paise) followed by Andhra Pradesh (22 paise), Orissa (0.19 paise), Rajasthan (14 paise).The lowest cost per litre is estimated in West Bengal fol-lowed by Jharkhand and Gujarat where the capital cost is less than 10 paise per litre.Variable Costs:We have received information on some of the variable cost items ofJKP incurred by theOMCs. These relate to items such as administrative expenditures for launching ofJKP, under-recoveries relating to transportation of kerosene and publicity expenses. Among these items some of the “launching expenses” and “publicity expenses” may not be incurred at the same level every year. We have assumed that the “administrative costs” may be spread over three years and the publicity costs over two years rather than charging all costs in one year. The alloca-tion is done based on a simple division over two to three years as indicated and not using any sophisticated procedure such as converting expenses in constant prices first. As we will show, these expenses are relatively much smaller as compared to under recoveries. The overall estimates of annualised capital and vari-able costs are provided in (Table 13). The estimates show that under-recoveries are the most important cost items across most of the states. Only in Assam, Jharkhand, Kerala, Maharashtra, Meghalaya, Rajasthan and West Bengal they are lower than the “annualised capital expenditure”. At the aggregate level they are about twice the level of annualised capital expenditures. It may be important to understand the ways in which under-recoveries can be reduced.The “administrative and launching” costs of the project that have been captured are small relative to the quantum of kerosene distributed. We have distributed the administrative costs over a three-year period as many items under this head are not likely to be incurred repeatedly. The publicity expenses are greater than administrative and launching costs. They were the largest in Jharkhand as compared to all other states. In aggregate, the costs are significant when we consider the capital costs and the under recoveries. It is important to examine ways in which the under-recoveries are reduced.3.3 Comparison of Benefits and Costs We should note again that both the benefits as well as costs are not fully captured in this exercise. The extent of underestimation is not known. But clearly, if the objective is to reduce leakage, any analysis of the programme would have to compare the cost of Table 12: Estimated Capital Cost of JKPState Name Average Cost Per Litre (Rs)Andhra Pradesh 0.22Assam 0.11Chhattisgarh 0.25Gujarat 0.09Haryana 0.12Jharkhand 0.07Kerala 0.10Madhya Pradesh 0.16Maharashtra 0.12Meghalaya 0.01Orissa 0.19Punjab 0.10Rajasthan 0.14Uttar Pradesh 0.09West Bengal 0.04All sample states 0.12Source: Estimated from cost data provided by IOC, HPCL and BPCL.Table 13: Estimated Capital, Variable and Total Cost of JKP(in Rs)State Name Average Annualised Annualised Other Annualised Total Cost Per Annualised under Recovery Cost (Launching + Publicity Litre Capital Cost Per Litre Administrative) Expenses (Average) Per Litre Per Litre Per Litre Andhra Pradesh 0.22 0.36 0.00 0.02 0.60Assam 0.250.640.02 0.010.92Gujarat 0.090.460.000.040.59Haryana 0.120.990.000.031.14Jharkhand Pradesh 0.16 0.38 0.00 0.02 0.56Maharashtra 0.190.430.000.040.65Punjab 0.100.470.000.040.61Rajasthan Pradesh 0.09 0.20 0.00 0.02 0.30West Bengal 0.04 0.00 0.00 0.01 0.05All sample states 0.12 0.22 0.00 0.02 0.37Source: Estimated from cost data provided by IOC, HPCL and BPCL.
SPECIAL ARTICLEfebruary 23, 2008 EPW Economic & Political Weekly76settled as usual at each supply point depending on the quantity of transaction through cash, cheques or drafts. The entitlement card of the panchayat would get swiped at the retailer point af-ter verification of physical quantity of kerosene by the gram pradhan/secretary every month. The counter slip signed by the pradhan/secretary would be for the office record. As for the household’s entitlement cards, they would be dis-tributed to each eligible household on the basis of list prepared and certified by gram pradhan/secretary, primary schoolteacher AnnexureState Kerosene Quota for Different Types of Users and AreasAndhra Pradesh Non-LPG cardholders: – Municipal corporation (excluding Hyderabad): 10 litre per month – Municipalities: 6 litre per month – Mandal headquarters: 5 litre per month – Rural areas: 3 litre per month Deepam for LPG cardholders: 2 litre per month Hyderabad Municipal Corporation: – Non-LPG BPL cardholders: 19 litre/month – Non-LPG APL cardholders: 7 litre/month Deepam for LPG card holders: 2 litre per monthAssam Non-LPG cardholders: 5 Litre/month LPG cardholders: 3 to 4 Litre/monthChhattisgarh Non-LPGusers: 4 litre per month irrespective of area and card type LPGusers: Single barrel connection (SBC): 2 litre per month Double barrel connection (DBC): No kerosene allocationGujarat Maximum 10 litre per card without LPG connection, no kerosene allocation for households with LPG connectionHaryana 6.5 litre per card, no quota for LPG usersJharkhand No specific quota, it is decided by district magistrate on the basis of availability of keroseneKerala Electrified households: 2 litre per month Non-electrified households: 5 litre per month Additional cooking permit for non-LPG cardholders: 6 litre Fishingpermit: Up to 10 HP out board motor: 300 litres per month 11 HP – 15 HP out board motor: 315 litres per month More than 15 HP out board motor: 425 litres per monthMadhya Pradesh Non-LPG users: 5 litre per month in rural areas and 3 litre per month in urban areas irrespective of area LPGusers: Single barrel connection (SBC): 2.5 litre per month in rural areas and1.5 litre per month in urban areas. Double barrel connection (DBC): No kerosene allocationMaharashtra Monthly kerosene allocation depends on number of units in a card. Mumbai and Thane rationing area: varies from 5 to 24 litre Municipal corporation area: 3 to 24 litre Taluka head quarter/municipalities: 2 to 20 litre Rural areas: 2 to 15 litre SBC: 4 litre DBC: No kerosene allocationMeghalaya 9.5 litre per card in urban areas and 4.7 litre per card in rural areasOrissa 4 litre per card Punjab 8 litre per card in urban areas and 6 litre per card in rural areas for BPL category, no kerosene allocation for APL cardholdersRajasthan 5 litre per card for non-LPG users, 2 litre per card for SBC and no kerosene allocation for DBCUttar Pradesh 5 litre for non-LPG card holders and 3 litre for LPG cardholdersWest Bengal 900 ml per month per card, there are individual cards in West Bengal instead of family cardsand patwari. The gram sabha will then pass this household list with basic household profile like name, father’s name of the head household, and number of family members. The district collector office would facilitate the whole exercise. The list would reach the SLC through the state food and civil supplies department. This could be done at the national level by the Petroleum Plan-ning and Analysis Cell(PPAC) or theSLC office would outsource the task of making entitlement cards to reputed companies on the basis of competitive bidding for the state in coordination with the state governments.Households will get their cards swiped at the retailer point for each transaction of his monthly entitlement with an option to draw his entitlement in one, two or three visits. The nominal transaction cost for swiping would be borne by the household. This would discourage unnecessary transactions but facilitate genuine ones. The retailer and households for office and per-sonal records would keep the counter slips for each transaction. Thus, through this process whole of the kerosene quota could be tracked from the oil depot to the households by self-monitor-ing of the kerosene supply by different stakeholders. The log files generated in theSKMS would help the centre and state governments in monitoring, the distribution of subsidised kerosene. This data would provide valuable insights for future policy corrections. Some ConcernsTo ensure smooth functioning of the kerosene distribution some concerns need to be addressed. These include functioning of minimal infrastructure. For instance, break down of the tele-phone lines could completely halt the system. The ministry of pe-troleum and natural gas could be coordinated with the depart-ment of telecommunication (DoT) to ensure the operational lines on a priority basis. Similarly, maintenance ofEDC terminals is crucial for which appropriate system should be in place. The con-clusion drawn from the proposed pilot study would help in opti-mal utilisation of these EDC terminals.ConclusionsTo conclude, preliminary impact analysis of the empirical data from the survey has led us to believe that it is a step in right direc-tion. However, to further reform the distribution of subsidised kerosene, theJKP should ensure tracking of kerosene supplies throughEDC terminals, so that entitlements reach the intended beneficiaries.Note 1 In the case of Assam and Meghalaya no break-up of capital expenditure into cost of barrel, etc, was available. We have taken the proportions available for the other remaining states to allocate total capital expenditure into barrel costs and other capital expenditures.ReferencesComprehensive Study to Assess the Genuine Demand and Requirement of SKO (2005): NCAER Report sponsored by the Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas, Government of India.Gangopadhhyay, Subhashis, Bharat Ramaswami and William Wadhwa (2004): ‘Reducing Subsidies on Household Fuels in India: How Will It Affect the Poor?’ March, mimeo.

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