Get out of the kitchen

Govt should not explore unworkable solutions

The petroleum ministry’s “single kitchen” concept for new consumers of liquefied petroleum gas, or LPG, is a classic case of using a flawed solution to compensate for policy distortions in the pricing of petroleum products. The norm of allowing one LPG connection per household with one kitchen may look good on paper but it is hardly a foolproof mechanism to curb the misuse of the highly subsidised fuel. New consumers are required to give an undertaking that neither she nor any family member has a gas connection in the single-kitchen house (the penalty for violation is hardly draconian: the consumer forfeits her security deposit, which is a couple of thousand rupees).

The first real issue is how to define a kitchen: does it mean any room that has a stove? Or does it also require a sink and a refrigerator? The possibilities for corruption in the definition alone are immense. But the larger question remains: does the government really need to subsidise LPG? It is, after all, scarcely a poor man’s fuel. Yet, the government’s subsidy to middle-class and rich households has grown five-fold over the past eight or nine years and now ranges around Rs 25,000-30,000 crore annually. And this is not the only anomaly. Usually, a subsidised product must be given in limited quantity. However, LPG is available in large quantities: a consumer is entitled to a refill after every 21 days, which means she can buy 17 subsidised LPG cylinders a year and avail of a (wholly unnecessary) subsidy of over Rs 6,400. Given that not all consumers refill after 21 days, it is inevitable that the cooking gas dealer diverts domestic LPG for commercial use, for which prices are market-linked. Nearly nine million new connections were given during the first nine months of the current fiscal year, which will increase the subsidy by seven or eight per cent. And, disturbingly, the drop in kerosene consumption is not proportionate to the expansion of LPG coverage.

Urban households get a large part of the LPG subsidy even when they have the capacity to pay the market price and will use it even at higher prices. Past data from surveys conducted by the National Sample Survey Organisation show that households have the flexibility to absorb certain additional costs on LPG by adjusting expenditure on discretionary items. Accordingly, LPG price can be increased at least to the extent the householder’s income has increased so that the proportion of income that it spends on LPG remains the same.

Nor is a price rise tough to implement, since the political will for an LPG price rise clearly exists. Last year, a parliamentary standing committee recommended scrapping the subsidy for anyone with annual incomes of over Rs 6 lakh, including those holding constitutional posts, public representatives like members of Parliament, state Assemblies and Councils. If the government recognises that there is a strong case for encouraging the poor to use a clean fuel like LPG and target the subsidy to them, it makes more sense if there is one market-linked price; any subsidy should be transferred to the targeted consumer through either an entitlement scheme or cash transfers.