LPG subsidy: It's just one pizza that the govt is denying you

If the government claim of GiveitUp campaign being a success is taken at face value, then what was the need to restrict LPG subsidy to those with taxable income below Rs 10 lakh? If consumers are doing it voluntarily, then why the need to restrict?

There can be only two reasons for it— either the government’s claim of Prime Minister Narendra Modi’s call for giving up LPG subsidy being a success is incorrect and/or there is a window of opportunity to shrink the list of beneficiaries further since global prices are low.

Certainly, GiveitUp had a limited scope of saving subsidy despite the misleading government campaign which said a matching connection to BPL household would be given. Consumers database, in fact, was artificially matched. It was the oil marketing companies and their shareholders which have been paying for BPL connections under their corporate social responsibility plans.

The subsidy saving also had a limitation under the GiveitUp campaign. Government data shows under 4 per cent or 5.7 million consumers have opted to give up subsidy. Also, there aren’t any official figures readily available of how much subsidy will be freed because of a mere 4 per cent giving up subsidy; especially since there aren’t any figures available of how many subsidised cylinders in one year did they actually consume. The current government policy allows only 12 subsidised 14 kg cylinders in a year against one domestic LPG connection.

Just last week Petroleum minister Dharmendra Pradhan interestingly narrated to Business Standard journalists how a retired school teacher walked up to him at a camp where he was present and said she wanted to give up her LPG subsidy. He rued the fact that those who are part of the affluent class are deliberately holding on to subsidies. 

“While many consumers have given up subsidy voluntarily, it is felt that consumers in the higher income bracket should get LPG cylinders at the market price. Therefore, the Government has decided that the benefit of the LPG subsidy will not be available for LPG consumers if the consumer or his/her spouse had taxable income of more than Rs 10 lakh during the previous financial year computed as per the Income Tax Act, 1961,” the government statement on Monday added.

Initially, this new dispensation will be on self-declaration basis while booking cylinders from January 2016 onwards. Though it is not clear how and when will this self-declaration translate to actual checks, it is clear consumers will have to give a copy of their tax filing to the LPG distributors to avail of subsidy.

On the second point of window of opportunity, Monday’s announcement is certainly well timed by the government. Crude oil prices are near 11-year low. 

LPG subsidy in 2014-15 was about Rs 36,580 cr, that was less than Rs 10,000 cr over the previous financial year. The subsidy is expected to drastically go down this year considering that global prices are even lower in 2015-16. In the first half of the financial year, LPG subsidy was just Rs 8,814 crore. This leaves the government with an advantage. Any denial of subsidy at this point will lead to far less impact on households than when crude prices are at $100 a barrel.

In the foreseeable future, oil prices are unlikely to rebound. So, if the government could have restricted subsidy to those with taxable income less than Rs 10 lakh, it could have been only now. At the current level of subsidy, the impact on a household consuming 12 subsidised cylinders will be just Rs 2,264 annually or additional Rs 188.68 every month, much less than the price of one Dominos’ pizza.