Abstract In India, kerosene is primarily used for domestic lighting in un-electrified rural households. The government incurs significant expenditure on subsidies and under-recoveries associated with supply of kerosene distributed through public distribution system. In addition to poor illumination and indoor pollution, kerosene lamp usage necessitates expenditure on purchase of kerosene for lighting. The study evaluates the feasibility of diverting subsidies and under-recoveries provided by government and the fuel cost incurred by the user to finance replacement of kerosene lamps with solar lanterns. It is found that such an initiative will save money for both the government as well as the users besides providing better quality illumination without any indoor pollution.