Why DBT in LPG is a must

Updated: Oct 25 2014, 07:31am hrs
While the government has decontrolled the price of diesel, the next critical reform would be to bring down under-recovery in domestic LPG. In FY14, under-recovery from LPG was over R46,000 crore, which rose 4.5 times from that in FY06. The gap between production and consumption is widening and India has to import LPG to meet its rising domestic demand.

Click here for graph

The governments decision to re-introduce direct benefit transfer (DBT) for LPG in 54 districts from mid-November, which was put on hold by the UPA government in January ahead of the Lok Sabha elections, is a positive move. The government has announced that the subsidy per cylinder will be now fixed and even people not having Aadhaar numbers can have the subsidy transferred to their bank accounts. This will reduce leakages and subsidies can be targeted at the poor.

There is unequal distribution of subsidies across rural households, as the proportion of subsidies that go to the poorest quintile is just 0.07% as compared to 52.6% for the richest quintile, according to the Kirit Parikh report on pricing of diesel, LPG and kerosene. In urban areas, the report says, though the proportion of subsidies that goes to the poor is still low at 8.2%, there is a more equitable distribution across other quintiles. In the past one year, some weeding out of fake LPG consumers has already taken place. So, with direct transfer of cash to bank accounts of LPG consumers, the government is expected to save nearly R10,000 crore.

Under the modified DBT scheme, all LPG consumers, who had already joined the scheme based on Aadhaar numbers, will start getting subsidy in their Aadhaar-linked bank accounts. The LPG consumers will get a grace period of three months during which those who have joined the scheme will get subsidy in bank accounts and others will continue to get cylinders at subsidised price.