{
  "title": "For Richer, Not Poorer: Energy Subsidies in India",
  "publication": "IMF Blog, June 24, 2013",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2013/06/24/for-richer-not-poorer-energy-subsidies-in-india",
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  "summary": "Fuel subsidies in India are both fiscally costly and socially regressive.",
  "sections": [
    {
      "heading": "Overview of the problem",
      "content": "- Fuel subsidies in India are both fiscally costly and socially regressive.\n- At a global level, IMF research finds fuel subsidies:\n  - Crowd out high priority public spending like health, education and infrastructure.\n  - Put pressure on current account deficits.\n  - Distort productive investment toward energy-intensive sectors and technologies.\n  - Contribute to global warming (they are the opposite of carbon taxes).\n- In India, fuel subsidies were reaching the neighborhood of 2% of GDP before reform efforts."
    },
    {
      "heading": "Distributional findings",
      "content": "- Across many low- and middle-income countries, the top 20% of households capture six times more in benefits from fuel subsidies than the poorest 20%.\n- In India specifically:\n  - The top 10% of households spends more than 20 times as much on fuel as the poorest 10%, in per capita terms.\n  - If fuel products cost market prices, the top 20% of households would pay six times more for fuel, per person each month, than the poorest 20%.\n  - Low-income households consume mainly kerosene; kerosene is the least regressive product to subsidize.\n  - Upper income households predominantly use petrol (gasoline) and LPG; gasoline is the most regressive fuel product to subsidize.\n- The bottom 40% of families could be fully compensated for the move to market prices for less than a fifth of what government now spends on fuel subsidies."
    },
    {
      "heading": "Fiscal and macroeconomic implications",
      "content": "- Fuel subsidies:\n  - Crowd out spending on roads, schools, and hospitals.\n  - Add pressure to worsening current account deficits.\n  - Encourage distortions toward energy-intensive investment and technologies.\n- Reducing fuel subsidies would create fiscal space for high priority spending and help ease current account pressures."
    },
    {
      "heading": "Policy actions taken and considerations",
      "content": "- Government measures over the past nine months include:\n  - Systematic increases in diesel prices.\n  - Plans to cap the number of subsidized Liquefied Petroleum Gas cylinders per household.\n  - Encouragement for state electricity boards to set more cost-reflective power tariffs.\n- These measures are described as welcome and pro-poor, because subsidy removal shifts costs toward higher-consuming richer households.\n- Targeting and leakage:\n  - The analysis assumes no leakage of benefits; leakage is a major challenge in India.\n  - Even if half of the efficiency gain were lost to leakage, fuel subsidy reform would still create significant fiscal space.\n  - The government’s plans to improve the targeting of fuel subsidies are viewed as particularly promising.\n\nSource: David Coady, Thomas Richardson, June 24, 2013 — For Richer, Not Poorer: Energy Subsidies in India\n\n---\n\n\n References\n\n- recent IMF research\n- new IMF working paper\n- https://www.imf.org/wp-content/uploads/2013/06/india-subsidies-chart.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2013/06/24/for-richer-not-poorer-energy-subsidies-in-india"
    }
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    "Authors: David Coady, Thomas Richardson",
    "Published: June 24, 2013",
    "Fuel subsidies in India are both fiscally costly and socially regressive.",
    "At a global level, IMF research finds fuel subsidies:",
    "In India, fuel subsidies were reaching the neighborhood of 2% of GDP before reform efforts.",
    "Across many low- and middle-income countries, the top 20% of households capture six times more in benefits from fuel subsidies than the poorest 20%.",
    "In India specifically:",
    "The bottom 40% of families could be fully compensated for the move to market prices for less than a fifth of what government now spends on fuel subsidies.",
    "Fuel subsidies:",
    "Reducing fuel subsidies would create fiscal space for high priority spending and help ease current account pressures.",
    "Government measures over the past nine months include:",
    "These measures are described as welcome and pro-poor, because subsidy removal shifts costs toward higher-consuming richer households.",
    "Targeting and leakage:",
    "[recent IMF research](http://www.imf.org/external/np/fad/subsidies/index.htm)",
    "[new IMF working paper](http://www.imf.org/external/pubs/cat/longres.aspx?sk=40593.0)",
    "[https://www.imf.org/wp-content/uploads/2013/06/india-subsidies-chart.jpg](https://www.imf.org/wp-content/uploads/2013/06/india-subsidies-chart.jpg)"
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