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How withdrawal of LPG subsidy can raise India's healthcare costs

LPG subsidy was in many ways an investment into public health; now that will be withdrawn

Siddharth Singh 

Empty Liquefied Petroleum Gas (LPG) cylinders are seen at a gas distribution centre at Dujana village in Noida (Photo: Reuters)
Empty Liquefied Petroleum Gas (LPG) cylinders are seen at a gas distribution centre at Dujana village in Noida (Photo: Reuters)

In India, 4 to 5 lakh people die of household air pollution every year – largely due to improper ventilation combined with the use of biomass fuels for cooking and lighting. Even today, a majority of rural households continue to use biomass (such as wood and cow dung) as the primary cooking fuel. The burning of these fuels emits pollutants such as carbon monoxide, sulphur dioxide, particulate matter, benzene, and metals including lead and copper.

The use of dirty biomass fuels for cooking has several detrimental impacts on human health by either directly causing or aggravating acute and chronic diseases. For instance, pollution from such fuels contribute to 12% of still births in the country. The Family Health Survey (2005-06) also revealed significant increases in child morbidity due to poor household air quality. There is a gender angle too, as household air pollution leads to a range of diseases among women, who are the primary cooks in most Indian households. Over 2.4 million cases of chronic bronchitis, 0.3 million cases of TB, 5 million cases of cataract and various adverse pregnancy outcomes among Indian women are attributable to household air pollution due to the use of biomass as a cooking fuel. 

A joint study by the World Bank and the University of Washington showed that in 2013, losses cost India 7.7% of its GDP due to premature deaths and illnesses caused or aggravated by air pollution (both household and outdoor). The loss of labour output due to air pollution was $55.4 billion in India. There is an undeniable and significant impact of air pollution on both public and personal health expenditures. 

An obvious solution to this is the use of cleaner fuels to cook, and the provision of electricity for lighting. The latter is taking place at a steady pace. To tackle the former, the government introduced the Pradhan Mantri Ujjwala Yojana (PMUY) in 2016 to promote the use of LPG for cooking. LPG is a fossil fuel, but it burns significantly cleanly with no production of soot. LPG connections to households have steadily and significantly increased over the past few years. 
However, having an LPG connection is one thing, while actual continued usage for cooking is quite another.  

High usage costs and an inefficient supply chains are stumbling blocks, which is why “fuel stacking” is common in Indian households – i.e. many households continue to use biomass even if they have an LPG connection. Studies have shown that due to these reasons, some households make the transition back from LPG to biomass after initial usage, while others continue to use biomass primarily. 

An therefore assists the poor in ensuring that this clean cooking fuel remains within the budget of many poor households, thereby keeping them healthy and saving on time spent on collecting wood. However, naturally, subsidies are a cost on the exchequer. Total petroleum subsidy was Rs. 22,000 crore in 2016-17, but it has fallen significantly from Rs. 1,61,000 crore in 2012-13. 

The quantum of the subsidy fell because not only did oil prices more than halve from over $110 per barrel in 2014 to under $50 a barrel today, but concurrently, the government removed subsidies on the sale of petrol and diesel in 2010 and 2014 respectively. 

Even as crude prices fell, India’s petrol and diesel prices remained largely stable because the government kept increasing the taxes on these products. One justification for this is that fluctuating prices at the consumer’s end can be politically risky, and the taxes will be reduced when crude prices rise. The government later termed these taxes as “green taxes” in a communication to UNFCCC. 

To further reduce the petroleum subsidy burden, the government has urged people to give up their LPG subsidies, and the petroleum ministry reports that over 1 crore have given it up so far, who are from presumably middle to high income households who do not need the subsidy. Further, households with taxable income over Rs. 10 lakh per annum have been excluded from the  

With this background, it is therefore surprising that the government has decided to end LPG subsidies too. On the 31st of July 2017, the Petroleum Minister announced the increase of LPG prices by Rs. 4 per month until the subsidy on it is completely eliminated, or until March 2018, whichever comes first. This will potentially delink the government budget with crude prices. 

While this move will have a positive impact on the government budget, it is likely to have a detrimental impact on the transition to modern fuels in rural India, and on the health of the citizens. After all, what has not changed is rural India’s reliance on biomass for cooking. The poor continue to use it – and suffer from the air pollution caused by it. 

Apart from the impact on human health and therefore the economy, what has also not changed is the affordability of LPG. This is in particular of concern at this juncture as there have been reports of significant job losses in the aftermath of demonetization – particularly in rural India. 

The removal of the therefore comes at a precarious time. The subsidy was in many ways an investment into The concern is that this will impact marginal households and keep many households trapped in biomass use for daily cooking – which has no place in a modern
Siddharth Singh is a German Chancellor Fellow and a Visiting Fellow at the 'Wuppertal Institut für Klima, Umwelt, Energie' in Berlin. He is a researcher and consultant on energy policy and is available on Twitter @siddharth3 

Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.

First Published: Fri, August 04 2017. 08:00 IST