LPG Subsidy: Why only for the rich?

The price for the domestic LPG cylinder has been going up since May 2020 when it had a price tag of Rs 581. The pre-pandemic cost of non subsidised LPG cylinder was Rs 859 in Delhi in February 2020. In March of 2021, it was Rs 819. However, for most, the high price last year did not hurt since the subsidised cylinder was priced at Rs 567 and beneficiaries’ bank account was deposited with Rs 292. Only those who declared their income was above Rs 10 lakh per annum did not get this subsidy. While 261 million households got this subsidy only 10 million people did not.

Today, since the price of both the subsidised and non-subsidised domestic LPG cylinder is the same, none get the subsidy. While denying subsidy to the middle class may be justified, it is cruel to deny it to the poor.

When LPG was first introduced in India in the late 1960s, there might have been a need to incentivise the consumers by way of subsidy but due to initial investment in terms of deposit amount and cost of stove, it was mostly the rich and the middle class could afford LPG.

Once people got accustomed to subsidy, no political party dared to drop it or even limit the amount of subsidy. Under UPA in 2012, a cap of six cylinders per year was imposed. Later, under pressure from Congress leadership, it was increased to nine and then to 12. In reality, such a cap was making mockery since on average each household uses only about 6.3 cylinders a year.

The NDA government introduced Pradhan Mantri Ujjwala Yojana (PMUY) in 2016. Earlier, the government had been promoting several projects like improved stove, smokeless chulas, and biogas. Unfortunately, they did not achieve the desired results.

Under the PMUY, the government provided a subsidy of Rs 1,600 per LPG connection which is roughly 50% of the total cost, and even though the government offered an interest-free loan on the rest of the amount, it has continued to remain an expensive option for a number of rural households.

Over the years between 2011-2020, those households having LPG connection have been getting Rs 1,717 subsidy per year. Such an average number does not convey the inequity of the subsidy system. It may be recalled how some ministers and VVIPs used to get more than 200 subsidised cylinders a year. Let us look at those rich who might have gotten say 100 subsidised cylinders per year in 2013-14. They would have managed to get a government handout of Rs 48,800 since the average subsidy per cylinder during that year was Rs 488.

Now with even PMUY families having to pay full price, deserving poor families fail to get any subsidy. It is beyond comprehension that a government that had introduced a progressive policy like PMUY has failed to extend the subsidy to the poor. This is one of the reasons for PMUY failing to achieve its goal of poor switching completely to LPG.

Several studies have shown why poor families are continuing to use firewood, cow dung or biomass. For example, a Gurugram based NGO, Sehgal Foundation conducted a survey of 605 households (April, 2020) in the Samastipur district of Bihar to learn about the cooking fuel preferences.

Survey results have clearly shown that despite having LPG connections more than 40% end up using firewood. Though housewives prefer LPG, many cannot afford to pay for it. 81.8% of the respondents were landless while 11.2% were marginal farmers. The sample is certainly not representative of Indian villages. Still, the survey shows the problem of shifting to LPG.

Thanks to PMUY, today 99.5% of Indian households have an LPG connection. Should we celebrate this remarkable achievement? The answer is no. According to a survey by National Statistical office in November 2019 only 61% of total households of the country use LPG for cooking purpose. Around 50% of rural households still use firewood, crop residue and cow dung for cooking purposes.

Now it is time for the government to constitute an expert committee to look into the entire LPG distribution to reinvent PMUY by studying the problems of all stakeholders.

To begin with, poor families should be given subsidy to incentivise them to completely switch over to LPG and stop use of other polluting fuels. The total subsidy amount needed to support the poor to start using six cylinders a year will be Rs 13,000 crore. In comparison, in 2013-14, non PMUY families were given a total LPG subsidy of Rs 50,370 crore when most did not need it. How ironic!

Second, the commission structure of LPG distributors should be designed in a way to motivate them to market LPG among the poor.

Finally, oil marketing companies should have the incentive to market LPG. Today they carry out it almost as a Corporate Social Responsibility activity.

(The writer is former governing council member of Manipal Institute of Technology, and an international oil industry expert)