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    There are many ways to slash cooking gas subsidy

    Synopsis

    The way ahead is to phase out subsidy on a time-bound basis & opt, for targeted direct benefit transfers using Aadhaar & other foolproof mechanisms.

    ET Bureau
    The Centre’s reported decision to cap the subsidy on cooking gas makes perfect sense. Open-ended — and, in effect, unlimited — consumption subsidies on petroleum products simply misallocate resources, stymie investment and jack up the cost of funds across the board. The subsidy on domestic LPG cylinders is also overwhelmingly appropriated by the non-poor and needs to be phased out for the greater good. In parallel, what’s needed is stepped-up distribution of piped cooking gas, on which there is no upfront subsidy.

    Consumers currently pay less than half the market price for up to 12 subsidised LPG cylinders per year. Petroleum minister Dharmendra Pradhan has been quoted as saying that while the number of subsidised cylinders will remain the same, their deliverable price will change. Note that last year, the LPG subsidy added up to over Rs 46,000 crore, much of it questionable. Worse, a 2012 survey revealed that 25 per cent of domestic LPG in Karnataka were ‘ghost’ connections. And in 2013, it was found that 20 per cent of its 1.6 crore registered LPG consumers in Andhra Pradesh were ‘bogus’. The way ahead is to gradually phase out the upfront subsidy on a time-bound basis and opt, instead, for targeted direct benefit transfers using Aadhaar and other foolproof mechanisms. The idea ought to be to move to a competitive market price rather than a distorted subsidised price that is perverse incentive for arbitrage and artificial shortages. In tandem, we need to genuinely open up LPG marketing so that multiple players can competitively seek custom and, in the process, drive down costs by improving logistics and supply.

    Such ‘parallel marketing’ was tried out back in 1993, but it failed to take off as there was no holistic policy design with clear-cut norms for infrastructure sharing, market development and the like. If the government were to stress city gas distribution projects, to replace bottled LPG, the investment would boost economic growth as well. A corollary would be a leg added to an emerging market for gas in India.

    36 Comments on this Story

    Baskaran 1847 days ago
    Sir,
    As cooking gas is an essential item,whether it is used in domestic or hotel industry,considering the fact petrol,diesel and ATF are causing environmental damage,it is better to discourage its use by loading the price of other petroleum products. This way we can all together eliminate the need to pay subsidy on cooking gas.
    shrinivasa kamath1851 days ago
    Private players should be allowed in LPG. Prices are likely to come down. Government can supply only to poor at a subsidised price through DBT. A large amount of subsidies is invariably siphoned out by those who are closely linked to the government.
    Rajesh Chheda1866 days ago
    Poor will be happy to pay market price for LPG because it is so much more better than kerosene which they pay market price beyond their allotted quota.
    Still LPG will turn out to be cheaper per month basis.
    The Economic Times