Need to reduce subsidised LPG cylinders to 10: Economic Survey

Voting for rationalisation of LPG subsidy, the pre-Budget Economic Survey has called for cutting supply of subsidised cooking gas to 10 cylinders per household in a year from the existing 12.

The survey also suggested that after successfully checking LPG subsidy leakage by use of technology, spreading of the JAM Trinity (Jan Dhan, Aadhaar, Mobile) to other areas will further reduce leakage and provide more fiscal space to the government.

At present, all households are entitled to get 12 cylinders of LPG or liquefied petroleum gas, each with 14.2kg, at a subsidised rate of Rs 419.26, against the current market price of Rs 575.

Any requirement above the entitlement of 12 has to be bought at market price.

“Rationalisation of LPG subsidy is essential. It may be useful to cap subsidy to 10 LPG cylinders for each household (that being the maximum used for usual domestic cooking),” the survey noted.

The previous Congress-led UPA government had restricted the number of subsidised domestic cylinders per household to six every year in September 2012, revising it to nine the following January.

The cap was revised in January 2014 to 12 cylinders a year, starting April 1 that year.

The survey also called for “aligning taxes and duties on domestic and commercial LPG users.”

Currently, there is no excise duty on a 14.2-kg of subsidised LPG cylinder, but a similar sized non-domestic bottle attracts eight per cent levy. Besides, while a subsidised domestic cylinder is exempt from customs duty, a five per cent import duty is levied on non-domestic LPG cylinder.

LPG is sold in different pack sizes — 5 kg, 14.2 kg and 19 kg. A household customer is allowed 12 cylinders of 14.2-kg each or 34 cylinders of 5 kg each during a year at subsidised rates.

The subsidised LPG cylinders are exempt from excise as well as customs duty but not the other categories including 19-kg commercial cylinders.

This anomaly has led to diversion or black-marketing of subsidised cylinders for other uses. Earlier, the Government had asked well-off people to give up using subsidised LPG and instead buy cooking fuel at market price. So far, over 65 lakh consumers, out of a total of around 15 crore, have responded to this GiveItUp campaign.

The subsidy payout on LPG in 2014-15 was Rs 40,551 crore, which this fiscal will be less than half as petroleum prices have slumped to a six-year low. During April-December, the subsidy outgo was Rs 12,092 crore.

Meanwhile the survey also advocated that spreading the JAM Trinity (Jan Dhan, Aadhaar, Mobile) to other areas will reduce leakages and provide more fiscal space to the Government.

Large-scale, technology-enabled, real time Direct Benefit Transfers can improve the economic lives of India’s poor, and the JAM Trinity can help government implement them, said the survey.

The first variety of JAM, the PAHAL is transferring LPG subsidies via DBT. It reduced leakage by 24 per cent and seems to have excluded few genuine beneficiaries.

“When deciding where next to spread JAM, policymakers should consider first-mile (beneficiary identification), middle-mile (distributor opposition) and last-mile (beneficiary financial inclusion) challenges,” it said.

Elaborating further, it said the centre should prioritise areas where it has the highest control over the first and middle-mile factors and leakage are high.

“At present, the most promising targets for JAM are fertiliser subsidies and within government fund transfers— areas under significant Central Government control and with substantial potential for fiscal savings,” the survey said.

The example of MGNREGA highlights that delivering within-government transfers via JAM can help other centrally sponsored schemes reduce idle funds, lower corruption and improve the ease of doing business with government, it said.

The JAM preparedness index suggests that the main constraint for its spread is the last-mile challenge of getting money from banks into people’s hands, especially in rural areas.

DBT in LPG has generally been a big success, and policymakers in other areas are understandably keen to emulate its success, it said.

However, when designing DBT schemes in other areas, caution should be exercised in drawing lessons from the LPG case.