Sunday, October 05, 2008

Blue Kerosene and the Black Market

An article in the Sunday Express caught my attention – “Tamper-proof kerosene: there is proof it can be tampered”. In this piece, Amitav Ranjan explains how the allegedly hi-tech, tamper-proof blue dye being used to color kerosene meant for the Public Distribution System (PDS) is being “cleaned” by using the most commonplace of substances – clay - before being used to adulterate petrol and diesel sold in the open markets. The dye is being imported from Authentix, a British Company, at the cost of Rs. 150 Crores per year.

India consumes 9.35 million tonnes of kerosene in 2007-2008, entirely sold through the PDS at a heavily subsidized price of Rs. 9.09 per liter. Its low administered price is a great incentive for the dealers who divert large volumes to mix it in petrol priced at Rs. 50.56 or in diesel sold at Rs. 34.80.

A study by NCAER (2006) showed 38.6% of kerosene diverted for other use. Another study by ASSOCHAM (2006) says that the government spends Rs. 15,000 Cr. in subsidizing Kerosene and that the illegal diversions were costing it Rs.5700 Cr. (per annum?)

In India, a vast chasm exists policy formulation and implementation. To make things worse, the willingness of our decision makers to bridge this chasm seems inversely proportional to number of people affected by it. Nothing exemplifies this better than the country's Public Distribution System (PDS).

Instituted during the 1940's as a response to war-time shortages, PDS was meant to be a conduit for distributing essential food-grains, edible oil and fuel to the poorest sections of the society.

Has it worked? – Proponents of the PDS system claim that after it was buttressed by the creation of Food Corporation of India and the Agricultural Prices Commission in 1965, it has become India’s de facto National Food Security System. They claim that the ‘minimum support price’ instituted by APC, along with the nation-wide distribution system has been successful in “preventing any more famines in India”.

Many others are unanimously and vehemently against wasting public money on a system that leaks like a sieve. Studies bear out that the PDS system is most ineffective in Orissa and Madhya Pradesh, where the level of rural poverty is among the highest in the country. In the words of a former IAS officer, Mr. M.G. Devasagayam, "…policies are shaped by central politicians and senior civil servants who are not well aware of the practical and political difficulties at the local level resulting from their policies."

Perhaps Mr. Devasagayam is being careful when he blames the central politicians and the senior bureaucrats. Local politicians and junior bureaucrats certainly know what is actually happening on the ground - the PDS system has become a valuable source of political patronage and party funds. Who would want to kill the goose that lays golden eggs?

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