Govt gives more LPG subsidy, lights a fire under Aadhaar project

Written by fe Bureau | New Delhi | Updated: Jan 31 2014, 06:24am hrs
SubsidyThe increase in the cap on subsidised cylinders will lead to additional subsidy of R5,000 crore.
BITTEN by the political bug, the UPA government has decided to put Aadhaar-linked LPG subsidy transfer the sole full-scale direct benefits transfer (DBT) project on its immediate agenda

on hold. Through DBT, the government had targetted 20% subsidy savings, worth R60,000 crore.

Oil minister Veerappa Moily on Thursday said DBT for LPG (DBTL) scheme has been put on hold, adding a committee will review it in view of the complaints about its implementation. The immediate trigger is opposition to the scheme from many Congress-ruled states, but faulty Aadhaar rollout is also believed to have influenced the decision.

The move that amounts to slowing the subsidy reform process follows the hike in the number of subsidised LPG cylinders in a year to 12 from 9 fixed earlier and the restoration of diesel subsidy for state road transport corporations.

After a meeting of the cabinet committee on political affairs (CCPA), Moily said: Pending the committee examining the issues, the Aadhaar-linked LPG subsidy transfer has been put on hold.

The increase in the cap on subsidised cylinders will lead to additional subsidy of R5,000 crore. Under-recoveries on LPG for the first half of 2013-14 stood at R18,585 crore and for the whole of 2012-13, it was R39,558 crore.

Since the launch of DBTL in June last year end -December 2013, the scheme completed more than 40 million cash transfers worth over R2,000 crore to the bank accounts of 66 million consumers in 184 districts.

DBTL under which consumers got R435 advance money in their bank accounts so as to help them buy an LPG cylinder at market price was this month extended to 105 districts including Delhi and Mumbai. The scheme was launched in 20 districts in June 2013 and was extended to 34 more in September 2013.

Kerosene DBT scheme is only at the pilot stage and won't make any meaningful difference to subsidy amounts soon.

DBTL has run into trouble, with the low levels of Aadhaar accounts and bank account seedings. LPG consumers must link their Aadhaar number to LPG gas connection number and bank account to be eligible for subsidised cylinders. There have also been voices within the Congress party to do away with the DBTL considering many consumers did not either have the Aadhaar number or bank accounts linked to Aadhaar. Also, the validity of the scheme was put into question after the Supreme Court on September 23 stated that the Aadhaar card is not mandatory and no person should be deprived of any government schemes for want of it.

Moily said that till DBTL issues are settled by the committee, all LPG consumers will utilise the old system of paying the subsidised amount of R414 per cylinder (in Delhi). Under the DBTL scheme, the subsidy was deposited in the consumer's bank account and the consumer would pay the LPG dealer the entire market price.

Moily also said that all households will get one cylinder extra, on top of the quota of 9 cylinders, in February and March. From April, they will be entitled to 12 cylinders one cylinder per month at subsidised rates. This comes after Congress vice-president Rahul Gandhi said at last week's AICC session said that nine cylinders were not enough for households and there was a need to increase this quota to 12 cylinders of 14.2 kg.

Moily has said that 89.2% of the 15 crore LPG consumers use up to nine cylinders in a year and only 10% have to buy the additional requirement at the market price. If the quota is raised to 12, about 97% of the LPG consumers would be covered by subsidised LPG.

Earlier, the oil ministry had said that increasing the limit to 12 cylinders would result in additional subsidy burden of around R3,500-5,800 crore. This is based on the assumption that the incremental 1.4-1.5 crore odd households that use 10-12 cylinders a year will come under the subsidy net. So, the subsidy burden for these three additional LPG cylinders at a subsidy of around R763 per cylinder will be around R3,500 crore, which will vary depending on the behaviour of LPG prices and the actual number of households that take up the full 12 subsidised cylinder allocation.

With a view to cutting its subsidy bill, the government had initially capped the supply of subsidised domestic LPG cylinders to six per household in a year in September 2012. The annual quota was raised to nine in January 2013. Consumers who have exhausted their quota must buy LPG at the market price of R1,258 per cylinder.

Industry analysts are, however, worried that an increase in the cap will raise the level of black marketing activity as well as imprudent consumption of LPG.

In early January, oil companies increased the price of non-subsidised LPG cylinders by R220, one of the sharpest ever hikes aimed at shifting the burden of higher global prices on consumers. It followed a R63 hike on December 1, and a rise of R3.50 a cylinder 10 days later.

State-owned oil retailers revise rates of non-subsidised LPG on the 1st of every month, based on the average imported cost and rupee-US dollar rate during the previous month.