Subsidised LPG finds its way to commercial users

Siddhartha P Saikia, Arup Roychoudhury Posted online: Wednesday, May 28, 2014 at 0000 hrs
New Delhi : Armed with a revealing statistic which virtually demolishes the myth that restricting supply of subsidised LPG cylinders per household to below 12 a year could hit the poor, the finance and petroleum ministries have coordinated and prepared a note for the Narendra Modi Cabinet, suggesting that the cap be lowered from 12 to nine forthwith.

The argument is that an average family below the poverty line (BPL) uses less than seven cylinders a year, according to a report by a committee headed by former IIT Kharagpur director Sanjay Dhande.

The petroleum ministry has observed that the increase in the cap from the initially fixed six in September 2012 to nine in January 2013 and further to 12 a year later has, rather than benefit the common man, only led to diversion of the low-priced cylinders to commercial users (see table). Because of the UPA government’s rolling back of the policy to limit the sale of LPG at concessional rates under political pressure, the government’s oil subsidy burden — and, consequently, its revenue expenditure — has increased. This constrained the government’s ability to spend for productive purposes, even as GDP growth has come down.

The overall under-recoveries of oil marketing companies fell from R1.6 lakh crore in 2012-13 to R1.4 lakh crore in 2013-14 but those on LPG increased from R39,558 crore to R46,558 crore during the period.

While this would ultimately be a ‘political decision’ to be taken by the Modi-led cabinet, chances are bright that this would be one of the first decisions of the new administration overturning the previous government’s policy.

The UPA government was forced to increase the cap (on subsidised LPG) from nine refills a year to 12 after Congress vice-president Rahul Gandhi publicly intervened in policy-making by requesting then Prime Minister Manmohan Singh for the change “in the interest of the country’s women”. The increase in the cap was despite the fact that average consumption of LPG by a BPL family is just 6.7 cylinders every year, according to the Dhande panel report.

Currently, a subsidised 14.2-kg LPG cylinder costs Rs 414, while a 19-kg commercial refill costs Rs 1,541 in the national capital. There are 15 crore household and 20 lakh commercial consumers of LPG in India, and household consumption accounts for the bulk of the usage, according to official records.

“The trend clearly shows that there is diversion of domestic LPG for commercial use,” a senior petroleum ministry official told FE, adding that a cap of 12 cylinders leaves just 1% of domestic consumers out of the subsidy net.

“Modiji has dedicated this victory to the poor and has already stated that the government will work for betterment of the poor. This will be my ministry’s guiding principle as well,” said 45-year-old Dharmendra Pradhan, who took charge as the minister of state (independent charge) at the oil ministry on Tuesday.

Last week, petroleum secretary Saurabh Chandra listed the increase in LPG cap as one of the policy mistakes by the previous government, in his presentation to cabinet secretary Ajit Seth. Meanwhile at North Block, the finance and expenditure secretaries are likely to discuss the issue as they brief new finance minister Arun Jaitley, officials said.

“When the increase happened, we had raised our objections as increasing the cap from nine to 12 would mean more than 90% of all LPG refills would have to be subsidised. That is not a statistic you want when you are talking about fiscal consolidation and cutting down on subsidies,” a finance ministry official told FE.