Kerosene Blackmarketing- The Real Picture #EconomicSurvey

The Economic Survey of India states that PDS allocations lost to leakages were 54%of wheat, 15%of rice, 48%Sugar & 41% of Kerosene. That’s over Rs. 68,700 crore rupees.

[tweetthis twitter_handles=”@Aun_X, @Vidyut” url=”https://t.co/IoqjNglEh2″]Amazing how popular ration items show the most “leakages” #EconomicSurvey http://t.co/YzVnuK7ZWD[/tweetthis]

Wheat, sugar and kerosene are the three items most people prefer to purchase from the PDS system. These are the three items that do not result in any major perception of lower quality from having been purchased from the PDS system, as opposed to rice, which is usually noticeably poorer quality than the more expensive and better tasting store bought varieties. Most purchasers of rice from the PDS system, other than the very poor end up using it for making flour or batter for dosas. Very few who can afford to eat well bother with the rice from the PDS system to eat with cooked grain in tact. Is it not remarkable then, that rice, which often has poorer quality sacks than sugar manages to leak more than sugar? Who are we fooling here?

Here we take a look at the inside story on “leakages” with kerosene. Similar stories exist for other items too.

The PDS system in India was introduced in 1965 and was aimed at poverty alleviation and to curb hunger in the lower classes of the society. With time India has changed, but the good old Public Distribution System remained the same.

The PDS system in India has always been in news for all the wrong reasons. Out of the entire host of commodities those are sold through PDS, Kerosene’s black market alone is worth Rs. 10,000 Crores. While there have been talks and talks only to reduce these losses, no action is visible on ground. We have often heard that black marketers are ruthless, they have been robbing the government and even have killed some honest Government officers like Sonawane in Nasik, Maharashtra or some senior journalist in Andhra Pradesh, but not much of the reporting is done to understand the real cause. We are often told that the price deferential between the Diesel and Kerosene is responsible while that isn’t the complete picture.

The System:

Kerosene is sold in the market through a whole host of dealers and sub dealers. When a tanker is dispatched from the company it is sealed and secured. When it reaches the Dealer or the whole seller, it need to be first checked by the Tahsildar or any officer from his office and certified that the tanker is not tampered with. Only after that a tanker can be unloaded at the depot.

Once the Tanker is unloaded at the depot, it again needs to be certified by the tahsildar that the entire load is unloaded, and the documents are needed to be stamped and signed. Same goes with Semi wholesalers as they buy the entire sealed lorry from the Dealers. The semi-wholesaler then distributes the stock to the Hawkers and retailers.

The Government has fixed approx. Re1 / ltr as commission to the dealer as well as the wholesalers. But the need of unnecessary checks at every level means more money changes hands as bribes right from the clerks in the tahsildar’s office to the District Supply Officers. A Dealer normally pays 5000 to 10000 per month depending on his quota. Higher the quota more is demanded from the District Supply Officers. Even after the payment of these bribes, the dealers and wholesalers are raided and show cause notices are issued against them when they ask questions.

Now let’s talk about hawkers and retailers. Each retailer and hawker has been allotted a monthly quota which can be in the range of 1 to 5 barrels (200 ltr/ barrel) a month, depending upon the need of kerosene in his territory. A retailer buys kerosene from the dealer at the rate of 15.40/ ltr and sells it at 15.66/ltr (or he is suppose to sell at that price). That means he makes Rs. 52/barrel. Imagine this. Just the transportation cost that he bears from the dealer’s depot till the point of distribution costs Rs 200/barrel. Add to it his record keeping expenses which is about Rs 200 per month plus the monthly bribes of Rs. 1000 per month that he has to pay to various clerks of the tahsil office.

All these numbers makes the entire business unviable for him. Since he is the only point of leak in the distribution system, mafias target these poor retail license holders. They purchase the entire monthly quota from them giving them a profit of Rs. 5/ ltr. Or Rs 1000/ Barrel. And then they retail it for Rs. 40/Ltr in the open market.

This is a systematic problem. Apart from a culture of bribery, the narrow margins also contribute to making the business unviable, leading to “leakages”. The end result is poor availability of kerosene for the common man, regardless of price.

There is a need to use more realistic language in reporting statistics to citizens. There is also a need to investigate sources of leaks and plug them comprehensively while making necessary revisions for the system to still remain viable enough for the distribution to happen.

Another problem is that kerosene is not available for purchase other than government ration supplies – even if a citizen did not want to purchase it in “black”. Unless you have a ration card that allows you to purchase kerosene, there is no legal way if you needed to buy it for say… cooking on an outing or using with oil paints or lighting a bonfire. There is a need for kerosene to be available for purchase on the open market as opposed to government ration sources alone. This will reduce the market for “black” kerosene if people can simply buy legally.

The problem is such that these “leakages” often result in kerosene being unavailable for people to purchase even if they are entitled to purchase with their ration cards. Households dependent on kerosene for cooking end up spending far more money purchasing the kerosene siphoned off from the system at higher prices.

As per The Hindu report, Government is currently losing Rs. 12.54/ ltr by way of subsidies. If the subsidies are removed the kerosene will be retailed in the market for Rs 27.68Rs/ ltr. This is still cheaper than what is being sold by the mafias in the open market. This will raise the price for the poor consumer regardless. The alternative is to devise a system and adequate checks that prevent this pilferage. Possibly by making the margins more realistic and clubbing them with severe punishments for theft.

These solutions are really practical but it needs a strong political will for its implementation. But you can never expect a government which works hand in glove with mafias to implement them.

Regardless, the mafia causing such massive losses to the country have to be eradicated. In the meanwhile, the Economic Survey of India should at least stop lying and call these “leakages” what they are – pilferage. The real problem has to be visible for real solutions to even be deemed necessary.

This post has been written in collaboration with Aun Ajani.

Aun Ajani is a MBA graduate from the Birmingham Business School, UK. He has previously worked with an Investment bank and is now conducting market research to implement his business idea. He has witnessed the problems in kerosene retail and distribution business since his childhood as his family is in the petroleum retail business since the last 75 years.