If past is precedent, chances are govt will fail again
With the demand for LPG rising steadily, according to a report in The Economic Times, Reliance Industries Limited has asked the government to treat it on an equal footing with PSU oil marketing companies like Indian Oil and Hindustan Petroleum when it comes to subsidies. Unlike in the past when oil marketing companies had to supply LPG at subsidised rates, they now recover the full price from consumers while the government transfers the subsidy amount to the bank account of the consumer—to that extent, there is no problem in collections, but no customer is going to buy Reliance gas unless she gets the same subsidy that Indian Oil customers get. Whether this subsidy treatment can be given to Reliance is what the oil ministry is examining. If past is precedent, chances are Reliance will not be given this subsidy, and its gas marketing plans won’t take off.
This is not the first time Reliance has faced a problem with subsidies. When the NDA government was in power the first time and promised to free oil prices—save for a small subsidy on kerosene and LPG—Reliance started its own petrol pumps. Within a few years, however, with PSU firms continuing to sell subsidised fuel, Reliance’s pumps began to lose customers and the company asked for the subsidy regime to be extended to it as well. The government didn’t agree since it didn’t want to be seen as giving subsidies to a private firm though it was clear the decision made little sense. Take the case of a Reliance pump that sold 1 lakh litres of diesel and incurred a loss of Rs 20 per litre—unless the government gave it the Rs 20 per litre subsidy, it would have no option but to shut down. But this demand for 1 lakh litres would still have to be met and the customer would move to an Indian Oil or a Hindustan Petroleum once Reliance shut down, and the government would then have to pay the Rs 20 per litre anyway—why not, instead, pay it to Reliance directly? At that time, since there was no independent way of measuring how much diesel was being sold by Reliance, the government’s stance could still be justified—though had it agreed, a mechanism for measuring could have been devised. Today, with all customers getting direct benefit transfers, even that logic cannot apply since only a genuine person will get the subsidy, directly in her account, and the government decides how much is to be allowed and for how many cylinders. Allowing Reliance, or any other firm for that matter, will unleash competitive energies in the LPG sector—right now, PSU oil companies tend to have similarly pricing structures for most products—and should be encouraged. It just requires the government to shed its blinkers and look at the larger picture.