Govt looks to save Rs 10,000 cr in cooking gas subsidies

The Narendra Modi-led central government is set to save a little over Rs 10,000 crore in petroleum subsidy - a third of the budgeted Rs 30,000 crore - in the current financial year, thanks to the successful nationwide rollout of the modified direct benefits transfer (DBT) scheme for liquefied petroleum gas (LPG). The scheme has already eliminated around 40 million ghost connections.

With enrolment of beneficiaries coming to a halt after covering around 130 million registered subsidised connections, oil-marketing companies (OMCs) say the scheme has helped identify the bulk of the other consumers as duplicate entries. "This also includes people who have voluntarily surrendered subsidy or lack bank accounts or those yet to enrol," a senior executive of Indian Oil Corp (IOC), the country's largest fuel retailer, told Business Standard.

The official added at least 40 million of the original 180 million connections would cease to exist even if enrolments were to rise marginally. "The government's savings could easily be about Rs 10,000 crore linked to these 40 million connections."

According to officials in the finance and petroleum ministries, apart from plugging of these leakages, low global crude oil prices have also helped lower the estimated petroleum subsidy outgo. The savings could be higher if the government successfully replicates the DBT scheme to also target Kerosene subsidy, as planned.

Petroleum Minister Dharmendra Pradhan confirmed this to Business Standard. "The scheme has helped us identify and eliminate 40 million ghost connections. This is a major reform and among the biggest achievements of the government in the oil sector."

The minister added the Centre was currently talking to multiple states to create a digitised databank of kerosene subsidy holders, for eliminating undeserving people from the list of beneficiaries. "However, we will ensure the kerosene subsidy quota is not cut for even a single poor and needy family," he added.

Many states have responded positively to the call. Rajasthan, Maharashtra and Goa, for example, are among the states understood to have shown willingness to come on board.

Consumers are currently entitled to 12 cylinders of 14.2 kg at subsidised rates each in a year. Any requirement above that has to be procured at market price. A subsidised 14.2-kg cylinder is currently available at Rs 417 in Delhi, compared with the market price of Rs 626.50. The total savings, therefore, work out to Rs 10,056 crore on the basis of a subsidy of Rs 209.5 per cylinder.

Officials agree that low global crude oil prices have helped. Chief Economic Advisor Arvind Subramanian had said in a press conference last month that the government was comfortable with crude oil prices in a range of $50 to $80 a barrel. Senior finance ministry officials said the government was comfortable bearing the entire subsidy burden this financial year, if the crude oil price stayed within this range. And, the centre does not expect its fuel subsidy burden to overshoot the budgeted estimate, even if it exempts upstream oil companies from burden-sharing.

The officials also said that an agreement was expected to soon be reached between the Centre and states on ways to reduce the kerosene subsidy burden. OMCs underrecoveries - losses on sale of kerosene below market price - came down from Rs 30,000 crore in 2013-14 to Rs 24,700 crore last financial year. The fuel retailers are currently losing Rs 20.10 on every litre of kerosene sold through the public distribution system.