ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Deconstructing Government's LPG Subsidy Savings Claim

Deconstructing Government's LPG Subsidy Savings Claim

The Comptroller and Auditor General report on the implementation of PAHAL, India's ambitious direct benefit transfer for LPG scheme, debunks the government's exaggerated subsidy savings claim. To improve the efficacy of the subsidy delivery mechanism and curb diversion of subsidised domestic LPG to the black market, the government should take serious note of the recommendations made in the CAG report.

The cost to subsidise domestic liquefied petroleum gas (LPG) in India has declined since 2014 in step with the fall in international crude oil prices (Figure 1). This development coincided with the introduction of PAHAL (Pratyaksh Hanstantrit Labh), a direct benefit transfer for LPG (DBTL) scheme, by the National Democratic Alliance (NDA) government in November 2014. However, it is difficult to accurately assess the decrease in LPG subsidy cost attributed to the implementation of this scheme. The Comptroller and Auditor General (CAG) report, tabled in the Parliament in August 2016, has found “systemic problems” with the PAHAL initiative and has questioned the government’s claim of having saved more than ₹21,260 crore over the last two years in subsidy outgo for LPG (MoPNG 2016). Not surprisingly, the media has concentrated solely on the government’s savings claim,1 ignoring other aspects of the CAG report.

In November 2012, faced with a ballooning LPG subsidy burden (₹29,967 crore in 2011–12), the United Progressive Alliance (UPA) government decided to impose a cap of six subsidised cylinders per household annually. Though it is well-known that LPG subsidy mostly helps the middle class and rich (Economic Survey 2015–16), the UPA government under immense pressure, first from Sonia Gandhi and later Rahul Gandhi, raised the cap on subsidised LPG cylinders to nine in January 2013 and then to 12 per year in January 2014. The six cylinder quota limit was based on the average consumption of 6.27 by a family in a year. Thus increasing the limit to 12 cylinders was to make a mockery of the efforts to reduce subsidy, as only 3% of families use more than 12 cylinders a year (Hindustan Times 2014).

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