What is not clear, either then or now, is why the government is uneasy about giving subsidies to customers of private entities.
After all, the amount of subsidy on petrol/diesel/LPG remains the same, whether it is sold through the oil PSUs or private firms.
Now that the government is in the final leg of the BPCL privatisation—a lot depends on whether the bids will be higher than the internal valuation of BPCL’s value—it is trying to sort out the issue of the LPG subsidies BPCL gives to its customers; and it appears there is some unease over the government continuing to reimburse the PSU for the amount it spends on subsidies. The good news here, of course, is that the government realises that the subsidy needs to be given. One view is to shift BPCL’s household cooking gas customers to the remaining oil PSUs—IOC and HPCL—over a period of time and, till then, to continue to pay the subsidy to the privately-owned BPCL. Keep in mind that not doing this in the 2000s killed off the oil retail business of firms like Reliance Industries and Essar Limited. Both firms set up oil retailing businesses following the government decision to stop subsidies on petrol and diesel; but when the subsidy wasn’t phased out, and this was not available to Reliance and Essar, customers remained with IOC, HPCL and BPCL where petrol/diesel was available at a subsidised price.
What is not clear, either then or now, is why the government is uneasy about giving subsidies to customers of private entities. After all, the amount of subsidy on petrol/diesel/LPG remains the same, whether it is sold through the oil PSUs or private firms. And, while there was still some possibility of the private sector firm cooking up the subsidy numbers in the early 2000s, this possibility is much smaller with Aadhaar numbers and direct bank transfers to the consumer accounts. And even today, as it happens, government programmes—and that includes subsidies—are routed through private delivery partners. Several schools were set up in response to the Right to Education scheme and get paid for every student they teach, some states that offer free electricity to consumers do so by paying private sector discoms; indeed the central government’s ambitious highways programme is operated through private construction companies. And, in the case of food procurement, given how inefficient FCI is, the government costs would come down significantly if private firms were paid on the basis of how much grain they procured. As the government decides to exit more sectors, it will find that in several cases its social agenda will be better served if routed through the private sector with clearly defined—and rigorously monitored—deliverables.