Scrapping subsidies: Murder, inch by inch

THIRUVANANTHAPURAM: The strategy is widely called incremental poisoning, the kind employed by suicide cults. The magic of this ‘inch by inch’ murder is that the victims are fully aware of the lethal infusion. But since the poison is injected in minor negligible doses they never really feel it drilling through their body until one day, like an apocalypse without warning, it freezes their blood and stops their heart. It is the same process at work as the Centre slowly, almost stealthily, withdraws LPG subsidy. “Even a politically sensitive state like Kerala has now been conditioned to accept a subsidy-free arrangement,” a top Finance Department official said. (Over 4.27 lakh Malayali households, responding to Prime Minister Modi’s call, had voluntarily given up their subsidy claim.) The decision to rid the country of LPG subsidy was not a bolt from the blue.

The idea was ingrained before Narendra Modi had taken over. In 2013, when budgetary subsidies to oil marketing companies swelled to  Rs 85,000 crore, the Manmohan Singh government had imposed caps on the number of subsidised LPG cylinders that can be sold to a household, and had also dismantled the administered pricing mechanism for petrol. The results, it has to be said, were seductive for Modi’s finance minister Arun Jaitley. The subsidies on petroleum products declined to around Rs 60,000 crore in 2014-15, and to around Rs 28,000 crore in December 2015. The diktat to oil marketing companies (OMCs) to raise the rates of subsidised domestic LPG by Rs 2 a cylinder per month from July 1, 2016, was the product of such tantalising results. And barely a year later, in May this year, the NDA government asked the OMCs to raise the price of a cylinder by Rs 4, and by March next year it wants to end the subsidy once and for all.

In a span of four years, without anyone really feeling the heat, the price of subsidised LPG rose from Rs 410 to Rs 477 in the state. Now, the subsidised price is just Rs 92 away from the market price of Rs 570. “By this year itself, by increasing the price by Rs four a month, the gap will be bridged,” said Mr Babu Joseph of All Kerala LPG Distributors’ Federation. This looks like smart economics. After all, the argument has always been that large price differentials were leading to diversion of domestic LPG for commercial use. “It also encourages distributors to supply cylinders with less than 14.2 kg of gas. Thus a poor consumer pays effectively more for gas,” said Kirit S Parikh, former Planning Commission member.

But noted economist Dr Vinoj Abraham, associate professor at Centre for Development Studies, is repelled. “What is more important,” he asked. “To show that you have plugged your deficit or that you have provided the basic essentials for your people,” he said. Dr Abraham said that India was a poor country with at least 20 per cent of its population living below the poverty line. His dislike for the policy is manifested as questions. “What is the rationale for such a decision? Have we come to the conclusion that our households have reached a stage where they can sustain with their incomes alone?,” he said.

Dr Arun Abraham’s socialist argument is met by a capitalist one. “Higher price of LPG will incentivise people to use it more effectively,” Mr Parikh said. He said that there were many ways in which gas use can be reduced; a lower flame, a wide bottomed vessel, covering the pot and lighting it after the pot is in place. Mr Babu Joseph of the LPG Federation, however, has other concerns. “It looks like a ruse to throw open the field for big private players like Reliance,” he said. “Now because there is a subsidy element people purchase LPG mostly from public oil marketing companies like IOC, BPCL and HPCL. When the subsidy comes to an end, there is nothing to prevent people from placing orders with private players,” Mr Joseph said. “They are waiting in the wings, ready with their state-of-the-art propylene cylinders that are easier to handle,” he added.

Yet, demand for LPG unlikely to decline

The demand for LPG connections in the state, which is growing at an average of 11 percent  yearly, is unlikely to see any weakening due to the decision of the Union government to phase out the subsidy. According to a spokesperson of the IOC,  which has  nearly 52 percent of the domestic LPG connection in the state,  the demand for LPG connections is moving up due to factors such as convenience, upward economic and social mobility and availability. Although the Direct Transfer of Benefit (DBT) scheme has weeded out a large number of fake connections in the state,  the total number of connections  estimated at 87.5 lakh appears  exaggerated. It is true that the DBT scheme has eliminated a large number of fake connections engaged in pocketing the subsidy benefits, says experts in the sector.

According to the IOC spokesperson,  the oil marketing company  has  44.5 lakh domestic LPG connections while BPCL is credited with 27.7 lakh connections. The other major oil marketing firm HPCL  has  15.7 domestic LPG connections.
The total number of persons who have surrendered the subsidy benefits in the state during the past two years totalled around 4.27 lakh. Out of this,  2.31 lakh connections belong to IOC. Although  industry experts feel that the decision of the government to scrap the subsidy for LPG is unlikely to make any major dent on demand,  political parties say  the decision would have a cascading impact  on the family budget.

The Aam Aadmi Party activists took out a march to the Central Post office in Kochi on Tuesday protesting against the decision. Terming the withdrawal of the subsidy as yet another instance of the manifestation of the policy of “crony capitalism” followed by the Union government,  AAP leaders called for the rollback of the decision.   They  also expressed dismay at the silence by the mainstream  parties in this connection. “The subsidy amount of less than Rs 100 per cylinder may not be much for people belonging to the upper income brackets. But for those at the lower end of the economy,  it would  have a negative impact,”  said a woman in Kochi. The economically poor sections of the people will be hurt by the decision if the government moves ahead with the policy of subsidy scrapping without taking into account the economic conditions, she added.