Limit subsidies on LPG and kerosene

Limit subsidies on LPG and kerosene

The Central government has set apart Rs 4,55,145 crore for interest payments in the fiscal year 2015-16. This takes into account, for the most part, the subsidy on food, fuel as well as fertiliser (the 3Fs).

Subsidy to the fertiliser companies are in the range of Rs 73,000 crore. Of this, one-sixth goes for import of urea. The food subsidy bill is somewhere around Rs 1,24,500 crore. Out of this, about Rs 65,000 crore comes under the National Food Security Act (NFSA).

With the government’s control over retail prices of kerosene and LPG, there is an additional burden of Rs 30,000 crore. The food subsidy has many dimensions: stability in prices, ease of access by poor families to food and incentivisation of food grains production. Unfortunately, there is a disquieting seepage in the subsidy programme and many ineligible beneficiaries hive off the subsidised grains with delight.

A study undertaken in 2002 by an international agency reveals that for making available $1 of subvention to the poor, the governments spends $3.1. In another study done in 1998, it has been found that 31 per cent of rice and wheat is siphoned off through illegal ways.

The earlier avatar of NITI Aayog – the Planning Commission - in 2005 had acknowledged that 37 per cent of the food grains are drained off through dishonest means.

In 2001, it was made public that inefficient government agencies squandered 27 per cent of the subsidy budget for purchase, transport and   distribution of food grains.

According to the 2010 Government of India Economic Survey, because of incompetent and wasteful handling, only 10 per cent of the food subsidy reached the poor. In other wo-rds, India’s massive subsidy programme can do wonders only if it is competently managed.

Chhattisgarh has recently devised a better system for disbursement of subsidy. In a novel method, the whole process – from purchase of food grains from the mandi to their arrival at ration shops – has been digitised. This makes sure that the supply chain is corruption-free.

The transfer of subsidies - both direct and indirect- all over the world has singularly proved that direct benefit transfer is easier and winning. In the whole of Latin America, welfare schemes have been stitched into people-centric policies. It starts from education and ends in food grains and LPG. Between 2003 and 2009, Brazil was able to bring down its poverty by 15 per cent and the objective of eliminating poverty within five years could duly be accomplished.

In India, as we have seen, there was a superior impact on fuel subsidy when the government introduced the dual-pricing system in kerosene. So also is LPG. So far, about 13 crore consumers have been connected to the Direct Benefit Transfer (DBT) system and it has acquired the status of being the largest DBT in the world.

Thousands of crores of rupees have been saved and about six crore fake consumers have been driven out of LPG subsidy because of DBT. There also has been a purging of the black marketers. The adulteration of petrol and diesel with cheaply available kerosene was so much ingrained into the system that a separate class of mafias had taken roots.

Corrupting public life
Our fraudulent Public Distribution System (PDS) has yet another facet – corrupting public life. Dishonest traders hand in glove with local politicians have been sullying the PDS and this has had been adversely impacting the government’s anti-poverty policies. Obviously, in the context of our colossal welfare measures, a crooked and bungling distribution system is an anathema.

Many committees have, in the past decades, given precious recommendations to put an end to the shady PDS. The Rangarajan Committee (2006) had said that retail pricing of subsidised LPG should be revised and subsidy payments should go straight from the budget.

Similarly, the Parikh Committee had recommended that pricing of PDS kerosene should be linked to agricultural growth. The Kelkar Committee, on the other hand, recommended complete withdrawal of LPG subsidy in three years and further curtailment of LPG beneficiaries by 33 per cent.

Indeed, there is a need to limit subsidies on LPG and kerosene. Futuristically speaking, alternative source of fuel energy should be explored. Solar lamps could be a better alternative given their inexhaustibility and clean energy constituents. What’s more, solar power will need only one time subsidy unlike kerosene where subsidy is a perennial obligation.

In the last Union budget, the government had promised a total overhauling of the subsidy regime. Accordingly, all the three subsidy components - food, fertiliser and cooking fuel – were brought into one single expenditure structure.

The Expenditure Commission was given additional responsibility of reviewing the allotment of subsidies so that its maximum impact can be felt at the societal level.
All said and done, in order to have a robust economy, we need a clear road map to control, manage and re-organise the subsidy system.