Hon’ble Prime Minister, N Modi has made pronouncements ad infinitum that subsidies will be rationalized to take these away from the rich/better-off and given to the poor besides plugging leakages. While, on the latter, the government has made significant progress, in regard to former, there is little action on the ground.
Even in LPG [liquefied petroleum gas] where it has performed an extraordinary feat of virtually eliminating leakages and saving about Rs 15,000 crores annually under PAHAL [Pratyaksha Hastaantarit Laabh] for direct benefit transfer [DBT] of subsidy [under it, a record 30 million bogus/fictitious users were excluded from the list of beneficiaries], it has done little to meaningfully address the overwhelming bias towards the rich, much less eliminating it.
According to the Economic Survey – the most authentic official document that provides a comprehensive analysis of the economic scenario in the immediately preceding year and flags key issues to be addressed in the ensuing budget – only 0.07% of LPG subsidy in rural areas went to poorest 20% households. In urban areas, poorest 20% got only 8.2% of subsidies.
One does not need any further proof to recognize that in rural areas, the poorest have no access to subsidy at all whereas, in urban areas, they get a minuscule portion of subsidy. All along, getting LPG subsidy has been the sole prerogative [a sort of birth right] of the better-offs including the rich and very rich that covers ministers, MPs, MLAs, MLCs not to talk of industrialists and businessmen.
Given Modi’s over arching commitment to targeting subsidy to the poor only and his un-enviable reputation of walking the talk, one would have expected a “surgical strike”. The government could have straight away gone for dismantling of extant pricing and subsidy regime which benefits only the better-off/rich. Yet, it decided to go for a soft pedal approach under the “GiveUp” campaign.
Under it, Modi gave a call to people to voluntarily surrender their subsidy entitlement. This is an anathema to the very concept of fairness and social justice. An unjust benefit enjoyed by the rich/better-off for decades should be taken away swiftly without any remorse. Instead, what we see is the government making a fervent appeal and even spending crores on advertisements to persuade people to give up. It has led to only 10 million persons giving up which is a mere 6% in the total of 165 million users.
Since, this did not work, the government announced that from January 1, 2016, all those earning more than Rs 1 million per annum will forgo subsidy on self-declaration basis. This again was a half-hearted move as tax paying persons in this category are 2 million or a trifle 1.2% of registered users [though, there is a huge number earning more than 1 million but not paying tax, it would be wishful thinking to expect that they will come forward to give up].
The government has also identified 25 million users whose registrations are not authenticated by Aadhaar and decided to remove them from the list of beneficiaries beginning October 1, 2016. This is untenable and may invite the charge of discrimination. This is because there could be users who have other proofs of identity e.g. EC [Election Commission] I-card and cannot be denied subsidy just because they do not have Aadhaar card.
It has also asked oil marketing PSUs [public sector undertakings] [subsidy is delivered through them] to increase the price of LPG cylinder in small steps every month. This again is a weak move to gradually reduce subsidy and tantamount to handling the beneficiaries [mostly the better-off] with a kid glove.
It is evident that at this pace, the government will not be able to get rid of majority of the rich/better-off from the ambit of subsidy on LPG. We will then have a scenario whereby the total beneficiaries including poor households [now being added at a rapid pace] will reach marathon proportions even after eliminating bogus/fictitious names. To get an idea, let us look at the numbers.
In November, 2014 when DBT was resurrected by the present government, there were 185 million users. Out of these, 30 million were excluded being bogus. Another 10 million surrendered voluntarily. This reduced the total to 145 million. But, then 20 million poor households were added in last 2 years taking total to 165 million. That is where we stand today [exclusion of 25 million not having Aadhaar won’t be fair; so this deduction is not made].
During the next 3 years, the government has set a target of adding 30 million more poor households to the list of beneficiaries. This will take the grand total to 195 million by 2018-19. This will be even higher than the beneficiaries before the cleaning up process was started by Modi – dispensation two years ago.
The subsidy on LPG declined from around Rs 46,000 crores during 2013-14 to Rs 40,500 crores during 2014-15 and further to Rs 16,000 crores during 2015-16. For the current year, the budget provision is Rs 19,800 crores. While, weeding out fake customers has undoubtedly contributed to reduction, a bigger factor is steep decline in international price of gas and crude oil. At present, the per cylinder subsidy being low, the large number of beneficiaries does not prick. But, the day international price shoots up leading to steep rise in per unit subsidy, this mammoth number will begin to prick.
Therefore, Modi should get in to a ‘surgical strike’ mode now and announce exclusion of all rich/better-off from the ambit of LPG subsidy. The subsidy should be restricted only to poor households. This is the only way subsidy can be controlled in a sustainable manner thus avoiding a serious destabilizing effect on fiscal deficit.
The government should also stop the current practice of routing subsidy through oil PSUs. It should pay money directly to beneficiaries. This will pave the way to induct more players [including private companies] in LPG marketing thereby bringing in benefits of competition and resultant lower price to consumers.