Small subsidy cuts would have achieved a lot more
Much has been made of prime minister Narendra Modi’s #Giveitup campaign, exhorting the better off to give up their LPG subsidies; indeed, the oil PSUs even asked their LPG dealers to try and convince users to give up their LPG subsidies through an awareness campaign over a week, and TV campaigns/ hoardings exhort the public to do this even today. All told, 1 million people have given it up so far. While that is undoubtedly progress, it is a mere 0.7% of the total number that have registered their LPG connections under Aadhaar. At an average of 7 cylinders a year of usage—the cap has been put at 12 a year—that’s a total saving of a mere R140 crore out of India’s projected FY16 LPG subsidy of R19,000 crore.
In sharp contrast, if the government had followed the UPA’s policy of small cuts in diesel subsidies—say, a R5 per month cut in mammoth LPG subsidies which were R449.17 per cylinder a year ago and are R190.68 today—it could have saved a lot more. A cut in subsidies by R5 per month—so, take an average of R30 per cylinder for the year—across 13.5 crore users would mean savings of R2,835 crore based on an average usage of 7 cylinders per year and R4,860 crore if the cap of 12 subsidised cylinders is used. The collapse in global oil prices makes it look as if the government has achieved a lot, but had prices remained at last year’s levels, the picture would have looked very different.
Given how the UPA’s homeopathic hike in diesel prices never resulted in any political furore, it is indeed surprising that the government did not adopt this route for LPG subsidies; indeed, it is still not too late to do so. Nor is it clear why, if the #Giveitup campaign is as wildly successful as the government is making it out to be, this has not been tried for other subsidies like food and kerosene where the government spends so much more—while kerosene subsidies are likely to be R13,000 crore (at $60/barrel of crude), food subsidies are budgeted at R1.24 lakh crore. Indeed, it is odd that while India has 36.4 crore poor people, the National Food Security Act envisages giving subsidised food to 81.35 crore —to 74 crore at prices of a mere R2/3 for each kg of wheat/rice and 35 kg of foodgrains a month to 2 crore Antyodaya households. Once the SECC list of poor people is seeded with Aadhaar numbers, the government simply has to restrict the food subsidies to only the poor. Indeed, in even the case of LPG subsidies, the government has to restrict it to only the poor. While the official position is that Aadhaar is only meant to ensure the poor get their subsidies and not to cut expenditure on subsidies, the simple fact is the NDA cannot afford to carry on with the UPA’s absurdly high subsidies—albeit better targeted—and at the same time also hope to spend more on investment.