The Nandan Nilekani task force set up to evolve new ways of giving subsidy on fuel and fertilisers is set to advise the finance ministry to limit the supply of low-cost LPG to four cylinders a year to all consumers. The panel is also expected to recommend that the Union government should transfer subsidy on kerosene to state governments, which would identify the eligible beneficiaries.
Currently, fuel retailers IOC, HPCL and BPCL supply kerosene below cost across the country and get compensated by the central government and upstream producers like ONGC, Oil India and GAIL (India).
The panel, which is expected to submit an interim report to finance minister Pranab Mukherjee on July 5, is also expected to suggest that fertiliser subsidy should be given to farmers through retailers in the short term. This would prevent smuggling of this commodity across borders. In the next stage, subsidy could be directly transferred to them at the point of sale. ?As the first step, the task force has proposed to set up a software to track the sale of fertiliser till the retail level. The second stage would involve payment of a subsidy to retailers and the third stage would cover farmers with unique identification cards,? said a person privy to the committee’s deliberations.
The recommendations would be implemented on a pilot basis by the ministries concerned under the supervision of the task force in the next six months.
Fertiliser secretary Sutanu Behuria told FE: ?It is only an interim report and there are many finer issues to be settled. If the government (cabinet) thinks the recommendations are feasible, we will implement it.? Former IOC chairman MS Ramachandran said: ?It makes perfect sense for the Union government to transfer kerosene subsidy to state governments, which could give it to eligible customers in a targeted manner.?
He, however, said that limiting LPG to four cylinders to all consumers irrespective of whether they are rich or poor, is not fair. ?In the case of LPG too, direct cash subsidy to the poor could be considered,? Ramachandran said. The task force was asked to help the government track fertiliser movement all the way to farmers. It has to expand the existing fertiliser management system, which tracks the commodity?s movement from plants and ports to 30,000-fertiliser warehouses across the country, to cover 2,30,000 licensed fertiliser retailers. Mathew Joseph, professor of economics at Four School of Management said: ?To make this plan work, the government should provide subsidy to marginal poor farmers through the land data available with the states. The retailers might not pass on the subsidy benefit to the farmers and this will not reach the people who need this subsidy?. The Nilekani panel wants state authorities to administer the delivery of kerosene subsidy, while the Centre will provide cash compensation. Since the Centre does not have sufficient data on kerosene consumers, the panel is relying on the state distribution mechanism. Experts believe state distribution systems are faulty and hence will be unable to check leakages. SP Tulsian, investment advisor, said the adulteration of kerosene is largely due to the failure of administration and weak political will to check it. The system can only become effective if kerosene is provided at market price to the fair price shops and the cash subsidy is provided to the target consumers. The government has to evolve a fool-proof system to check the leakages.?
The government last week hiked diesel price by R3 per litre, domestic LPG by R50 per cylinder and kerosene by R2 per litre, which would help the oil companies reduce their revenue loss by R21,000 crore. The government is also losing R49,000 crore due to tax cuts on petroleum products. Still, the remaining under-recoveries are pegged at R1,20,000 crore for FY12. As per the panel?s road map, every LPG connection holder?s number registered with oil marketing companies (OMCs) will be linked to his biometrics and the LPG delivery boy will verify it each time the cylinder is given. LPG subsidy is the difference between the price a customer pays and the international parity price. The subsidy will be provided to all households. According to a McKinsey report ?Inclusive Growth and Financial Security,? published last October, an electronic platform for government payments will save the government around R1 lakh crore.