LPG subsidy to rich unwarranted

The NDA government’s decision to deny the benefit of subsidy on LPG cylinders to tax payers whose annual income is more than Rs 10 lakh is welcome as a step in the direction of rationalisation of the subsidy regime. There is no justifiable reason to extend the subsidy to those who earn a high income by Indian standards. The subsidy on LPG is intended to wean people away from the use of firewood and other fuels which harm the environment. There is no ground to extend this benefit to the better-off sections of society. The decision may be taken as a natural extension of the GiveItUp campaign, launched by the prime minister and pushed by the government, for voluntary renunciation of LPG subsidy. About 52 lakh people have given up subsidy under the scheme, resulting in a saving of over Rs 1,100 crore this year. The latest decision will lead to denial of subsidy to over 20 lakh consumers.

While the decision has excluded the top tax paying class from the scope of LPG subsidy there may be a case to exclude more individuals and families. At current prices the denial of subsidy would mean only a higher expenditure of less than Rs 200 per month for a family which uses one cylinder a month. So many more families may be able to afford LPG cylinders which do not carry a price subsidy. The present annual saving of under Rs 2,000 crore is not much against the total LPG subsidy expenditure of over Rs 40,000 crore. The government can gradually reduce the number of beneficiaries further, taking income as a criterion. The UPA government had limited the number of subsidised cylinders to be availed by a family to 12 per year. Subsidies can be reduced by further reducing this number also.

The government is planning to make LPG available to all households in three years. The use of LPG will also help women avoid the serious health problems caused by the use of other fuels. The higher subsidy requirement arising from the wider use of LPG and the likely increase in the international prices of gas in future will have to be met by reducing subsidy for the better-off. As in the case of LPG, subsidies need to be gradually reduced for fertilisers and power also. In the case of fertilisers and power also, it is the better-off sections of society that benefit more from the subsidies than the really deserving. Direct transfer of benefits (DBT) should also become the norm for subsidy transfer in all cases.