Govt to discuss capping LPG subsidy tomorrow

The government will consider a proposal of capping the number of subsidised LPG cylinders to households. An empowered group of ministers on fuel underrecoveries will meet on Friday under the chairmanship of Finance Minister Pranab Mukherjee to discuss the issue along with financial health of the fuel marketers.

The capping is expected to be in a phased manner while putting in place a mechanism for a direct transfer of subsidy to the intended beneficiaries. Consumers will have to buy cylinders above the specified quota at market rates.

Currently, a consumer in Delhi can buy a domestic LPG cylinder at a price of Rs 399.35. This comes at a discount of Rs 267 on the desired price of LPG, calculated on import parity pricing. The total subsidy on the sale of LPG for the current financial year is estimated at Rs 27,000 crore. The subsidised price of domestic LPG incentivises a diversion for commercial usage. It also leads to indiscriminate use of domestic cooking fuel. “The idea is to have an income-based cap so the unrestricted subsidy is available only to financially weaker sections,” said a petroleum ministry official. If the proposal is accepted, the consumers above a certain income level will have to pay Rs 666 for buying cylinders over and above the capped quota.
 

MONEY MATTERS

• Current LPG price is Rs 399.35/cylinder in Delhi
• Current loss per cylinder to oil companies Rs 267
• LPG subsidy in FY10 Rs 14,257 crore
• LPG subsidy in FY11 Rs 21,772 crore
• LPG subsidy in Q1, FY12 Rs 7,381 crore
• Estimated LPG subsidy for FY12 Rs 27,000 crore

The petroleum ministry had made proposals for capping LPG subsidy to a task force on direct transfer of subsidies headed by Unique Identification Authority of India Chairman Nandan Nilekani. The task force had submitted its report to the government in July.

The oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan petroleum — are in advanced stage of launching a pilot project and have collected bank account details of consumers in Hyderabad and Mysore. “We will have a pilot till December in these two cities. Direct cash transfer of a token subsidy will be done in the pilot phase and the response will be studied. The pilot is being funded by the Oil Industry Development Board,” he said. The detailed report on the functioning of the pilot shall be submitted to the task force by December.