Kerosene and LPG are widely used in households in India for lighting and cooking. These fuels have historically been subsidized. As part of the restructuring of the energy sector, the government is committed to limiting these subsidies. This paper examines the impact of reducing energy subsidies on the welfare of the poor. The paper uses data from nationally representative surveys of over 100,000 households. The paper concludes that the case for reducing LPG subsidies is strong. Although the kerosene subsidy is an inefficient means of subsidizing fuel use by the poor, reduction in it will need to be supported by other policies that would limit the adverse impacts. (c) 2004 Elsevier Ltd. All rights reserved.