The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India

Author/Editor: Rahul Anand ; David Coady ; Adil Mohommad ; Vimal V Thakoor ; James P Walsh
Publication Date: May 29, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 13/128
Subject(s): Fiscal reforms | India | Energy sector | Oil | Subsidies | Welfare

Publication Date: May 29, 2013
ISBN/ISSN: 9781484305164/1018-5941 Format: Paper
Stock No: WPIEA2013128 Pages: 31
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