SAMVAD: International Journal of Management

Open Access Open Access  Restricted Access Subscription Access

Effect of Reduction of Fuel Subsidies on Poverty and Inequality in Developing Countries - The Case of India


Affiliations
1 Indian Institute of Foreign Trade, Kolkata-700016, India
2 Shyampur Siddheswari Mahavidyalaya (Affiliated to University of Calcutta, Howrah, West Bengal 711312, India
 

We use the Computable General Equilibrium (CGE) framework to show that there is a positive relationship between crude prices and the extent of poverty and inequality in India. We further show that any removal of subsidies on fuels such as petrol, diesel and Liquid Petroleum Gas (LPG), even when it is done during periods of declining crude prices, is antipoor. Importantly however when removal of these subsidies are coupled with targeted pro-poor transfers (as proposed, for instance, in the next phase of the Direct Benefit Transfer of LPG (DBTL) scheme in India) results in improvement of inequality and poverty indicators and thus mitigates the negative effects of removal of subsidy.

Keywords

CGE, Crude Oil Price, Energy Subsidy, Poverty, SAM.
User
Notifications
Font Size

  • Dartanto, T. (2013). Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: A simulation analysis, Energy Policy, 58, 117–134.

  • Naranpanawa, A., Bandara, J. S. (2012). Poverty and growth impacts of high oil prices: Evidence from Sri Lanka, Energy Policy, 45, 102–111.

  • Gangopadhyay, S., Ramaswami, B. & Wadhwa, W. (2005). Reducing subsidies on household fuels in India: how will it affect the poor? Energy Policy, 33(18), 2326–2336.

  • India in Figures 2015, Government of India, Ministry of Statistics and Programme Implementation, New Delhi: Central Statistics Office, Research and Publication Unit. Retrieved from http://mospi.nic.in/Mospi_New/upload/India_in_figures-2015.pdf

  • Siddig, K., Minor, P., Grethe, H., Aguiar, A. & Walmsley, T. (2015). Impacts on Poverty of Removing Fuel Import Subsidies in Nigeria, Policy Research Working Paper 7376, World Bank Group, Development Research Group-Agriculture and Rural Development Team.

  • Beaton, C., Gerasimchuk, I., Laan, T., Lang, K., Vis-Dunbar, D. & Wooders, P. (2013). A Guidebook to Fossil Fuel Subsidy Reform for Policy makers in South East Asia, International Institute for Sustainable Development.

  • Anand, R., Coady, D., Mohommad, A., Thakoor, V., & Walsh J. P., (2013). The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India, WP/13/128, IMF Working Paper. Retrieved from https://www.imf.org/external/pubs/ft/wp/2013/wp13128.pdf

  • Essama-Nssah, B., Go, D. S., Kearney, M., Korman, V., Robinson, S., & Thierfelder, K. (2008). Economy wide and distributional impact of an oil price shock on the South African Economy, The World Bank and Institute of Development Studies. Retrieved from http://siteresources.worldbank.org/INTPSIA/Resources/490023-1171551075650/3457768-1241469484668/AFRI_485-530_ch12.pdf

  • NSS 66th Round, Report No. 537: Employment and Unemployment Situation in India, 2009-10.

  • Census of India’s 2011 Provisional Population Totals of Rural-Urban Distribution in the country, released by Union Home Secretary R. K. Singh.

  • Chen, S. & Ravallion, M. (2008). The developing world is poorer than we thought, but no less successful in the fight against poverty, Policy Research Working Paper 4703, The World Bank.

  • World Economic Outlook 2007. IMF. Retrieved from https://www.imf.org/external/pubs/ft/weo/2007/02/pdf/c4.pdf

  • Panagariya, A., More, V. (2014). Poverty by social, religious and economic groups in India and its largest states: 1993-1994 to 2011-2012. Indian Growth and Development Review,7(2), 202–230.

  • Das, K., Chakraborti, P. (2013). General equilibrium analysis of trade and environment under alternative market structure: a computable general equilibrium study for India, DOI: 10.1007/s40622-013-0003-3.

  • Retrieved from http://data.worldbank.org/country/india

  • Poverty Database. (2012). The World Bank.

  • Retrieved from http://data.un.org/Data.aspx-?d=WDI&f=Indicator_ Code%3ASI.POV.NAHC

  • Retrieved from http://hdr.undp.org/en/content/income-gini-coefficient

  • Retrieved from http://data.worldbank.org/sites/default/files/section2.pdf


Abstract Views: 388

PDF Views: 150




  • Effect of Reduction of Fuel Subsidies on Poverty and Inequality in Developing Countries - The Case of India

Abstract Views: 388  |  PDF Views: 150

Authors

Amrita Ganguly
Indian Institute of Foreign Trade, Kolkata-700016, India
Koushik Das
Shyampur Siddheswari Mahavidyalaya (Affiliated to University of Calcutta, Howrah, West Bengal 711312, India

Abstract


We use the Computable General Equilibrium (CGE) framework to show that there is a positive relationship between crude prices and the extent of poverty and inequality in India. We further show that any removal of subsidies on fuels such as petrol, diesel and Liquid Petroleum Gas (LPG), even when it is done during periods of declining crude prices, is antipoor. Importantly however when removal of these subsidies are coupled with targeted pro-poor transfers (as proposed, for instance, in the next phase of the Direct Benefit Transfer of LPG (DBTL) scheme in India) results in improvement of inequality and poverty indicators and thus mitigates the negative effects of removal of subsidy.

Keywords


CGE, Crude Oil Price, Energy Subsidy, Poverty, SAM.

References