The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India

32 Pages Posted: 18 Jun 2013

See all articles by Rahul Anand

Rahul Anand

International Monetary Fund (IMF)

David P. Coady

International Monetary Fund (IMF)

Adil Mohommad

International Monetary Fund (IMF)

Vimal Thakoor

International Monetary Fund (IMF)

James P. Walsh

International Monetary Fund (IMF)

Date Written: May 2013

Abstract

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.

Keywords: Fiscal reforms, India, Energy sector, Oil, Subsidies, Welfare, Fuel pricing, subsidy reform, distributional impact, compensating transfers, income groups, cash transfers, input-output, cash transfer, direct impact, household consumption, social safety net, reform agenda, income decile, household expenditure, distributional impact, fiscal cost, poverty line, household survey, income distribution, implementation of reforms, national accounts, household survey data, living standards, analytical work, reform efforts, social impact analysis, statistical office, impact analysis, conditional cash transfer, fiscal policy, reform programs, household size, distributional impacts, reform package, refor

JEL Classification: C67, D30, D40, D60, H20, H22, H23, H31, I38

Suggested Citation

Anand, Rahul and Coady, David P. and Mohommad, Adil and Thakoor, Vimal and Walsh, James P., The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India (May 2013). IMF Working Paper No. 13/128. Available at SSRN: https://ssrn.com/abstract=2280634

Rahul Anand

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

David P. Coady

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Adil Mohommad

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Vimal Thakoor

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

James P. Walsh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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