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Tuesday, September 28, 2021

The LPG model

NDA’s subsidy reform in the sector sets a template for other areas of the economy.

By: Express News Service |
Updated: December 30, 2015 12:03:09 am
lpg At present, all households are entitled to get 12 cylinders of 14.2-kg each at subsidised rate of Rs 419.26, while the market price is Rs 608.

The NDA government’s decision to bar taxpayers earning more than Rs 10 lakh per annum from availing of subsidy on LPG cylinder sales is welcome for signalling a clear intent of targeting subsidies to the deserving. This announcement builds on the government’s “Give It Up” campaign, personally pushed by Prime Minister Narendra Modi. By insistently advocating the abjuration of the subsidy by the well-off — from the ramparts of the Red Fort on Independence Day and in his radio addresses to the nation — he built a political case for the reform. The prospective gains from the latest announcement may seem modest. This debarment, based on self-declaration of income, would only disqualify about 20.26 lakh income tax assessees, while the “Give It Up” campaign has already resulted in approximately 52 lakh people forgoing the subsidy, saving the government an estimated Rs 1,167 crore this year. But the trajectory of LPG subsidy rationalisation sets a template that other sectors can follow.

Indeed, the LPG sector has been an important testing ground for reforming the subsidy regime. The latest announcement aims to make the subsidy targeted, as opposed to being near-universal. The UPA government had earlier sought to restrict the subsidy entitlement to only six cylinders a year — before backtracking in the run-up to the 2014 election and raising the number to 12, covering purchases by 97 per cent of all consumers. Now, the present government is saying that the 12-cylinder entitlement will be limited to only those families with annual incomes below Rs 10 lakh. Moreover, the subsidy is now being delivered through direct benefit transfers, wherein the consumer pays the market price for the cylinder upfront, and then receives the subsidy directly into her bank account. This reduces the scope for diversion.

The government has rightly capitalised on falling international oil prices. It would have been harder to restrict the scope of the subsidy when the price difference between non-subsidised and subsidised cylinders was Rs 514.50 (in Delhi), as it was on May 1, 2014, before the Modi government came to power, than the Rs 189.5 now. But the critical question is whether the government can stay the course even if global oil prices return to the not-so-benign levels of years past. Also, the true test for the government would be whether it is able to extend the LPG model of targeting and DBTs in other politically sensitive and fiscally significant sectors such as fertiliser and food. The prime minister’s skills of persuasion and communication would be much needed there.

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