LPG subsidies don’t go to the poor, need to be reined in
If the government does decide, as looks likely now, to once again raise the cap on the number of subsidised LPG cylinders that each household can get each year from the current 9 to 12—it was raised from 6 to 9 last year—this will be a classic example of the left hand not knowing what the right is doing. For, on Wednesday, oil PSUs raised the price of non-subsidised cooking gas from R1,021 per 14.2 kg cylinder to R1,241—this, in fact, was the third hike in the past month. But since per subsidy per cylinder is up hugely from R490.5 per cylinder a year ago to R762.7 today—diesel subsidies per unit are the same while those on kerosene are up 22%—the share of LPG in total subsidies is up from 24.5% in FY13 to 30.5% in the first half of this year.
This is especially unfortunate since, thanks to prices being raised, there is evidence that people are being more careful in their use of LPG—consumption levels, which rose by 4% in the April to November period of FY13, slowed to under half at 1.8% in the same period of FY14. The 4% hike in FY13 itself—consumption grew 8.7% in April-November FY12—was a result of the original cap of 6 cylinders put in September 2012 and the government getting serious about weeding out commercial users of cooking gas who were buying the heavily subsidised domestic cooking gas.
What makes the cooking gas subsidy all the more unconscionable is that there is no evidence whatsoever of it reaching the poor—in the case of diesel which accounts for roughly half of all subsidies, it can be argued the poor benefit as this lowers transport costs of food and other items. A table in the Economic Survey, reproduced in the Kirit Parikh report on subsidies, pointed out that just 0.07% of the LPG subsidy in rural areas went to the poorest fifth of households. In the case of urban areas, around 8.2% of the subsidies went to the poorest fifth of households. Which is why, it is not clear why the government is not moving ahead aggressively with the plan to start distributing LPG subsidies using Aadhaar, more so since in the pilots done in 184 districts between June and now, 1.84 crore customers have been given R1,700 crore of LPG subsidy transfers. Apart from keeping the cap on the number of subsidised LPG cylinders at 9, what is required is to fix a steady R50 perhaps as the monthly hike in LPG prices. As the diesel experience shows —the system has been in place for a year now—customers soon get accustomed to it. But with the AAP showering freebies in its first few days in office, the temptation to follow is high—and it helps that part of the burden can simply be passed on to hapless oil sector PSUs.