An empowered group of ministers (EGoM) chaired by finance minister Pranab Mukherjee will examine on Friday whether to limit the number of subsidised LPG cylinders to 4-6 per households a year in order to prevent the diversion of domestic fuel for commercial use and abuse of the subsidy.
Fuel retailers like IOC, HPCL and BPCL now sell domestic cooking fuel at R399 per 14.2 kg cylinder in Delhi, which is below the market price by about R270. The subsidy requirement is met by upstream companies like ONGC, Gail India and Oil India and the government. The heavy subsidy on the commodity makes it lucrative to divert it for commercial use such as in restaurants at the expense of the tax payer?s money.
Since an EGoM decision is final and doesn?t need to be considered by the full Cabinet, petroleum minister Jaipal Reddy is likely to make an announcement on the issue after Friday?s meeting.
Capping the number of subsidised LPG cylinders is the first phase of fuel pricing reforms the government is implementing in cooking fuel as recommended by the Nandan Nilekani panel. In the second phase, consumers will buy cylinders at market price and the subsidy will go directly to their bank accounts. In the last phase, subsidy will be restricted only to the eligible class of consumers as identified by the respective state governments.
It is interesting to note that the petroleum ministry?s original proposal was to limit the number of subsidised LPG to all having an annual income of above Rs six lakh.
But a recent Parliamentary panel said that instead of those in this income group, the government could do away with the supply of subsidised LPG only to the affluent and the influential including public servants and those holding constitutional posts.
LPG subsidy has more than doubled from R8,362 crore in 2004-05 to R17,600 crore in the commodity boom-and-economic crisis year of 2008-09. After that it has softened somewhat but is still high. In 2010-11, the total subsidy on LPG was R14,257 crore, the panel noted.
