LPG subsidies aren't always pro-poor; the poor are consumers, not beggars

The oil marketing companies recently raised the prices of diesel, petrol and non-subsidised LPG. But in doing so they have sent mixed messages on what the government really intends to do on petro-subsidies.

The hike in diesel by 50 paise a month is in accordance with policy. It was the best decision ever taken by the UPA in years. It needs to be continued till prices reach market levels and then diesel can be deregulated. The hike in petrol prices may be warranted by recent increases in crude prices and so is the LPG price increase by Rs 16.50 per cylinder.

But the wrong message lies in raising the prices of non-subsidised LPG rather than the subsidised variety - which has the net effect of widening the gap between subsidised and non-subsidised home fuels. At current levels, LPG subsidies per cylinder are around Rs 450 per cylinder. Kerosene, of course, remains the holy cow - the so-called poor man’s cooking fuel that is actually used to adulterate diesel. With diesel rising consistently, the government has effectively increased the incentive for adulteration and corruption.

Why do governments do such daft things? The answer, of course, lies in political fears about being branded anti-poor, but it is time this hypothesis is questioned by intelligent politicians - among whom we hope Narendra Modi counts himself.

It is time to think differently about the poor and subsidies without denying them the benefits they may feel entitled to. This calls for effective strategies of communicating government intent and explaining its actions. It has to stem from the realisation that not all pro-poor subsidies help the poor, and not all market-based pricing harms them.

Here are some suggestions on, say, dealing with LPG and kerosene subsidies. None of the points is new, but they bear repetition as governments keep forgetting to put on their thinking caps.

First, the low-hanging idea is to get the rich and middle classes off petro-subsidies. How can this be done without political friction? One answer would be to launch a campaign targeting people who can afford to pay the full price - and make them look good to themselves.

Eg: One could attempt a campaign showing middle class people declaring: “I pay the full price for my LPG because I want subsidies to go to the poor. I am a proud Indian”. This appeal to higher human impulses can be supplemented with promises of instant connections and same-day deliveries to those willing to pay market prices.

Second, a more coercive approach would be to exclude subsidised supplies to all geographical areas that clearly have only the better off sections living there: high rises, bungalows, etc. In cities like Mumbai and Delhi, simple surveys can tell us which zones to exclude (eg: Defence Colony in Delhi, Malabar Hill and Bandra-Khar in Mumbai, but excluding the slum areas). This can be done in phases and by the additional use of IT returns and Aadhaar identification. This will also eliminate multiple connections at the same address.

Third, the government can fix the subsidy limit in specific quantums - say, Rs 400 for LPG and Rs 30 per litre for kerosene. This way prices can move up or down at the retail level every month (like they do for diesel and petrol), and the overall subsidy burden will come down as a share of GDP in two to three years. This approach has two advantages: one, it acquaints even the poor with the reality of market movements. They know that when their humble cup of chai can go up from Rs 3 to Rs 5 a cup on the roadside, it is not unreasonable to expect kerosene to move up - even if more slowly. Secondly, moving prices encourage conservation. If your price moves up you will waste less fuel - though you may use more of it if it falls. But once you get used to the idea that prices can rise, your wastrel tendencies will decline.

Fourth, the UPA’s abandoned idea of direct cash transfers needs to be revived. Once the amount of subsidy per cylinder or per litre of kerosene is fixed, the poor can be sold this simple benefit; you can choose to stand in line for kerosene, or you can collect the cash in your bank account and buy it (or anything other item of your choice) at any time of your choosing. Over time, it will also eliminate spurious and bogus recipients of subsidy. And it will end adulteration and misuse as neither kerosene nor LPG will be sold at deep discounts at the consumer end.

This approach has the added advantage of giving the poor dignity as consumers with rights instead of being mere supplicants dependent on doles and the patronising attitudes of the public distribution bureaucracy. A consumer with cash to pay for kerosene needs no favours from the ration shopowner. She is now a shopper, not a beggar.

It is time for both politicians and voters to stop being beggars. The former should stop begging for votes from the poor and then taking revenge on them by turning them into beggars for every little thing they need from government.

We should not be a nation of beggars.