When the LPG Transparency Portal, which enabled consumers to track last-mile delivery of domestic LPG cylinders by the PSU oil marketing companies, was inaugurated earlier this year, it offered some interesting insights to the LPG usage pattern of some of our VIPs.
Industrialist and Congress MP Naveen Jindal’s residence in New Delhi, for instance, was shown to have received 369 refills of LPG cylinders in a single year!
Given that the government bears a subsidy of about Rs 25 on each cylinder of LPG, and under-recoveries by downstream OMCs and burden-sharing by upstream NOCs together account for an additional Rs 325 or so, it turned out that one of India’s richest men was living profligately on under-priced LPG.
Nor was Jindal’s excessive use of gas an exception among VIPs. Vice-President Hamid Ansari’s official residence consumed over 170 subsidised LPG cylinders in a year; Union Minister Salman Khurshid and his wife used 62 cylinders (under two connections); and Mayawati used 91 cylinders under two connections.
Even more bizarrely, 48 subsidised cylinders were drawn in the name of deceased former Prime Minister Chandra Shekhar.
The list of over-the-top beneficiaries of subsidised LPG cylinders reads has names from across the spectrum – former police officers, former Chief Justices of courts, and current and former politicians.
You and I could have secured a second cylinder only 21 days after the previous booking, but no such limiting rules applied to these worthies.
There is perhaps nothing that illustrates the perversion of subsidies on LPG as the fact that some of India’s richest and most influential and powerful men were making such disproportionate use of the subsidies intended for poorer sections.
It is such misuse that the provision introduced overnight, putting a cap (six a year) on the number of subsidised cylinders that a consumer can draw, seeks to address. Any more than the six a year can be procured only at the market price of about Rs 750, against the subsidised price of about Rs 400.
To the extent that the ‘cap’ plugs a gaping hole in the misallocation of subsidies, it is of course welcome.
And no tears need be shed for Naveen Jindal. Given how his group companies benefited unduly from the coal block allocation, as this CNN-IBN investigation reveals, he can afford to get by paying the market price on the additional 363 LPG cylinders his household consumed last year.
But important as this measure is, it is only a halfway house towards a total decontrol of the administered pricing mechanism, and targeting subsidies effectively at the poorest. Previous experience of caps on cylinders shows us that they lead to artificial shortages, and create a black market.
As Firstpost has noted earlier, price controls and subsidy programs are a burden on government finances, whose costs are eventually borne by all of us. What’s worse is that the benefits don’t accrue to those for whom they were intended. The mispricing only skews the economics of the marketplace, and provides the incentive for black marketeering.
Indicatively, subsidised LPG cylinders are meant only for household use, but the vast difference between the price of domestic and commercial LPG introduces a marketplace dynamic, where these cylinders are diverted for commercial usage.
As this blogger illustrates, using the LPG Transparency Portal, people living in the chawls of Govandi in Mumbai have an unusually high LPG consumption rate of over 10 refills in just a few months. “Makes me believe that there's something fishy going around in that area,” he adds.
The Kirit Parikh committee that went into the mechanism for arriving at a viable system for pricing petroleum products had noted that the subsidies could be better targeted at the poor by invoking a smart card system – such as the Unique ID scheme that is under way – and by limiting the number of LPG cylinder per household, which the government has now implemented..
But by far the better alternative that the panel suggested was to price LPG at market price and provide the poor with a direct cash transfer. “A long-term viable system of pricing of domestic LPG and effective targeting of subsidy can be ensured through a transparent distribution system based on the Uniqud ID framework,” it noted.
“Under this framework, a single price of LPG for all consumption purposes can prevail in the market, which will eliminate the scope for diversion to unintended uses. Subsidies to the targeted group… can be delivered as entitlements or through direct cash transfers…”
In that sense, the LPG cap that the government has introduced is merely a halfway house towards a more efficient targeting of subsidies. To the extent that it weeds out the Naveen Jindals of the world from the perversion of drawing hundreds of subsidised LPG cylinders, it has some merit. But there’s still miles to go on the road towards effective targeting of the subsidy regime at the genuine needy.