This report examines attempts to reform India's long-standing subsidy on residential kerosene. At least one third of the subsidised kerosene is diverted to the black market for use as a transport fuel - a lucrative business for corrupt fuel distributors who, in turn, bribe government officials to obtain licenses to distribute or blend the fuel and to maintain the subsidy. India has tried to reform the subsidy but failed because of strong political pressure from the poor and black market participants. This paper looks at the main lessons learned from the reform process.