REINING IN LPG SUBSIDY : The Centre should get into a ‘surgical strike’ mode now and enforce exclusion of all rich/better-off from the ambit of LPG subsidy.
Prime Minister Narendra Modi has made pronouncements several times that subsidies will be rationalised to take them away from the rich/better-off and given to the poor besides plugging leakages. While the government has made significant progress on the latter, there is little action on the ground in regard to the former (subsidies).
In LPG distribution, the government has performed an extraordinary feat of virtually eliminating leakages and saving about Rs 15,000 crore annually under PAHAL (Pratyaksha Hastaantarit Laabh) for direct benefit transfer (DBT) of subsidy as under it, a record 30 million bogus users were excluded from the list. But it has done little to meaningfully address the overwhelming bias towards rich, much less eliminating it.
According to the Economic Survey – the most authentic official document that provides a comprehensive analysis of the economic scenario in the immediately preceding year and flags key issues to be addressed in ensuing budget – only 0.07% of LPG subsidy in rural areas went to the poorest 20% households. In urban areas, the poorest 20% got only 8.2% of subsidies.
One does not need any further proof to recognise that in rural areas, the poorest had no access to subsidy at all, whereas in urban areas they got a miniscule portion of subsidy. All along, getting LPG subsidy has been the sole prerogative (a sort of birth right) of better-offs including the rich and very rich that covers ministers, MPs, MLAs, MLCs not to talk of industrialists and businessmen.
Given Modi’s over-arching commitment to targeting subsidy to the poor only, one would have expected a “surgical strike”. The government could have straight away gone for dismantling of extant subsidy regime. Yet, it decided to go for a soft pedal approach under the “GiveUp” campaign. Under it, Modi gave a call to people to voluntarily surrender.
This is an anathema to very concept of fairness and social justice. An unjust benefit enjoyed by rich/better-off for decades should be taken away swiftly without any remorse. Instead, what we see is government making a fervent appeal and even spending crores on ads to persuade them to give up. It has led to only 10 million persons giving up which is a mere 6% in a total of 165 million users.
From January 1, 2016, the government announced that all those earning more than Rs 10 lakh per annum will have to forgo subsidy on self-declaration basis. This was a half-hearted move as tax paying persons in this category are 20 lakh or a trifle 1.2% of registered users (those earning more than Rs 10 lakh, yet not paying tax are quite large but don’t expect them to give up as they don’t fear being chased).
The government has also identified 25 million users whose registrations are not authenticated by Aadhaar and decided to remove them from the list of beneficiaries beginning January 1, 2017. This is untenable and discriminatory. There are users who have other proofs of identity – for example, the Election Commission I-card – and cannot be denied subsidy just because they do not have Aadhaar card.
It has also asked oil marketing public sector undertakings through whom subsidy is delivered, to increase the price of LPG in small steps every month. This again is a weak move aimed at gradually reducing subsidy and tantamount to handling the beneficiaries (mostly the better-off) with a kid glove.
It is evident that at this pace, the government will not be able to get rid off majority of the rich/better-off from the ambit of subsidy on LPG. We will then have a scenario whereby the total beneficiaries including poor households (now being added at a rapid pace) will reach marathon proportions even after eliminating bogus/fictitious names. To get an idea, let us look at the numbers.
In November, 2014 when DBT was resurrected by the present government, there were about 185 million users. Of these, 30 million being bogus were excluded. Another 10 million surrendered voluntarily. This reduced the number to 145 million (exclusion of 25 million not having Aadhaar card won’t be fair; so, this deduction is not made). But, 20 million poor households were added during last two years taking total to 165 million. This is where we stand today.
Cleaning up process
During the next three years, the government has set a target of adding 30 million more poor households to the list of beneficiaries. This will take the grand total to 195 million by 2018-19. This will be even higher than the beneficiaries before the cleaning up process was started by the Modi dispensation two years ago.
True, the overall subsidy payments on LPG declined from around Rs 46,000 crore during 2013-14 to Rs 40,500 crore during 2014-15 and further to Rs 16,000 crore during 2015-16. For the current year, the budget provision is Rs 19,800 crore. While weeding out fake customers has undoubtedly contributed to reduction, a bigger factor is the steep decline in international price of gas and crude oil. At present, the per cylinder subsidy being low, the large number of beneficiaries does not prick. But, the day international price shoots up leading to steep rise in per unit subsidy, this mammoth number will begin to prick.
Therefore, Modi should get in to a ‘surgical strike’ mode now and enforce exclusion of all rich/better-off from the ambit of LPG subsidy. The subsidy should be restricted only to the poor households. This is the only way subsidy can be controlled in a sustainable manner thus avoiding a serious destabilizing effect on fiscal deficit.
The government should also stop the current practice of routing subsidy through oil PSUs. It should pay money directly to beneficiaries. This will pave the way to induct more players (including private companies) in LPG marketing thereby bringing in benefits of competition and resultant lower price to consumers.
(The writer is a New Delhi-based policy analyst)
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