Cutting subsidy for just 2 mn is really meaningless
Those looking for bold LPG reforms, of the sort the NDA did with diesel thanks to the UPA’s policies of chipping away at subsidies every month, have reason to be disappointed with the latest ‘reform’ announced on Monday. After expending so much energy on the GiveItUp campaign with the prime minister’s personal exhortation, the government managed to get a mere 5.8 million people to do so—at today’s subsidy cap of Rs 18 per kg, that’s a maximum possible saving of Rs 1,800 crore, assuming each family draws its full quota of 12 cylinders per year. If this number was underwhelming, consider the impact of the new diktat to not give subsidies to anyone who has a taxable income of over Rs 10 lakh a year—this involves an even smaller number of 1.8-1.9 million being removed, or around 0.7% of the total number of households in the country. You would think that any attempt to cut subsidies would involve removing at least the richest 20-30% of the population from its ambit, but the government has gone and done one tiny fraction of that in the name of reform.
To put the Rs 10 lakh number in perspective—keep in mind a taxable income of Rs 10 lakh annually translates into an income of at least Rs 12-13 lakh per annum—this needs to be contrasted with the definition of, at least, the ‘creamy layer’ which is to be excluded from the list of those getting the benefit of caste-based reservations. Well, the ‘creamy layer’ level of income right now is half this, at Rs 6 lakh per annum. The ‘creamy layer’ income, by the way, applies to household income, not individual incomes as has been done in the case of LPG subsidies—so, using certain assumptions of what two adults in each family earn, it is likely the cut-off income levels for LPG has been kept at around three times that for OBC reservations.
It is, of course, true that the government has been capping the amount of subsidy on LPG, from Rs 40 per kg around this time last year to around Rs 18 right now. The problem, however, is that much of this is related to the falling petroleum prices, so there is no guarantee that when LPG prices start going up in the international market, the subsidy per cylinder will remain capped at Rs 18. Indeed, there has been a dramatic surge in the number of LPG connections over the past year. For April 2015, the petroleum ministry reported a total of 14.85 crore ‘active’ consumers of LPG versus 18.19 crore ‘registered’ consumers—it is by blocking these 3.34 crore accounts that the government reported a Rs 14,762 crore savings in FY15. That number of LPG connections, going by Monday’s press release is 16.35 crore today, or a whopping 1.5 crore more in the space of eight months. If the number of those using subsidised LPG is going to grow at this pace, once LPG prices start rising, there will be a sharp hike in subsidies. Given that the government claims most households consume less than seven cylinders a year, the least it could have done was to keep cap the subsidy at 7 cylinders while announcing a formula for the maximum LPG subsidy at, say, a third of the market price on any prevailing day.