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The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India
Author:
Rahul Anand
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,
Mr. David Coady
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,
Mr. Adil Mohommad
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,
Mr. Vimal V Thakoor
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Mr. James P Walsh
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https://orcid.org/0000-0002-8839-5865
Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 128
Language:
English
Publication Date:
29 May 2013
DOI:
https://doi.org/10.5089/9781484305164.001
ISBN:
9781484305164
ISSN:
1018-5941
Pages:
31
Keywords:
WP; fuel subsidy; subsidy reform; reform plan; transfer program; price liberalization; unsubsidized kerosene price; Fuel pricing; distributional impact; compensating transfers; India; kerosene price subsidy; liberalization program; LPG subsidy; refining company; Energy subsidies; Fuel prices; Inflation; Personal income; Price adjustments; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Rising fuel subsidies have contributed to fiscal pressures in India. A key policy concern regarding subsidy reform is the adverse welfare impact on households, in particular poor households. This paper evaluates the fiscal and welfare implications of fuel subsidy reform in India. Fuel subsidies are found to be badly targeted, with the richest ten percent of households receiving seven times more in benefits than the poorest ten percent. Although subsidy reform would generate substantial fiscal savings, the associated increases in fuel and other prices would lower household real incomes of all income groups. Better targeting of fuel subsidies would fully protect lower income households while still generating substantial net fiscal savings. Lessons from subsidy reforms in other countries are identified and discussed.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund