It is not possible to anticipate all the unintended consequences of new LPG quota system. While it may reduce subsidy burden to some extent, consumers will continue to face enormous problems in securing their LPG supplies in the future
Even under the best of times, it has never been an easy task for LPG (liquefied petroleum gas) consumers to secure supplies from public sector oil company dealers. When consumers can get petrol anywhere anytime why should it be difficult to get an equally if not more important commodity like cooking fuel without much hassle?
The state-run oil companies have been subsidizing residential LPG ever since it was introduced as a cooking fuel. Since people were not familiar with LPG, it was found necessary to subsidize it. In the beginning the subsidy burden was manageable. Diversion of residential LPG was minimal or non-existent. However, as the difference between subsidized residential LPG and commercial LPG widened, diversion increased. At present it is more than 30% based on several studies.
Currently the LPG burden to the central government has been more than Rs34,000 crore. On each LPG cylinder, the government has to dole out at least Rs468. To reduce the burden government has decided to limit the subsidized LPG to six cylinders per family per year as part of their recent big bang reforms.
However, when a consumer takes delivery of LPG, he has to pay the full price and subsidy will be deposited into the bank account by the oil company. To ensure that the subsidy amount is not directed to wrong persons, the Aadhaar platform will be used. On paper this looks fine and easy.
Mysore in Karnataka is one of the two districts to experiment with Aadhaar-based LPG delivery implementation on a pilot basis. According to the LPG dealers and oil company managers in Mysore, implementing quota system of six cylinders will be easy without any hassle. At this stage it is just a wild conjecture.
Already some consumers who do not buy LPG for more than six months have to go through an elaborate process of registering with the dealer again. Only when the oil companies give their approval from the centralized Bengaluru head offices, their account will be unblocked to receive supply. The rationale of such a process which is an unnecessary harassment to the honest consumers is not easy to defend.
If a house has a joint family or more than one family or multiple kitchens then they are eligible for a larger quota. How and who will decide this quota is not clear. Such discretion will certainly lead to bribing. Institutions like orphanages, schools with the mid-day meals, anganwadis are also eligible for additional quotas.
How about those who do not have the Aadhaar number? Will they be able to get the subsidy? Assuming some are not interested in the subsidy, can they get LPG supplies? Here again it is not clear at what price they will be able to get an LPG cylinder.
To put a stop to households having multiple connections from different public sector companies, an elaborate system using RR (number given by power companies) and also through the “Know Your Customer” formality was implemented. Many had to surrender the additional connections. Out of the blue, on 25th October the petroleum ministry decided to allow multiple connections and introduced one more price category called non-subsidized non-domestic exempt (NDEC ) which is about three times the subsidized residential price.
The petroleum ministry should be congratulated for having allowed the multiple connections and to allow the consumers to buy from any company of their choice. This will certainly introduce competition among the oil companies for that segment where high price is not a deterrent. This has been one of the suggestions made by LPG dealers.
Before the new policy of six cylinders, there were three prices for selling the same commodity LPG—highly subsidized residential, non-subsidized commercial and automotive. Now there are already three more new price categories announced for different consumer categories—subsidized residential consumers who will receive subsidy into their bank accounts for the first six cylinders, non-subsidized non-domestic exempt category and the third group consisting of schools, anganwadis, orphanages, etc. As different groups of consumers demand subsidized LPG, competitive politics may lead to some more price categories.
As discussed above, the same commodity—LPG—is sold for six different prices. One cannot design a more perfect system to generate black money. The lowest priced LPG of around Rs29,000 per tonne is for residential consumers and highest price of Rs89,000 per tonne is for the automotive sector. Only in a society where there are honest saints, diversion of such highly subsidized commodity like cooking fuel which is in high demand can be avoided.
To prevent the dealers from diverting subsidized LPG, oil companies have developed a complex system of receiving bookings only through their portals or through mobile phones. Since in the future a dealer is forced to sell LPG only at non-subsidized prices and subsidy is paid directly to the consumers, it is claimed that the dealers will not be in a position to misuse the subsidy system as in the past. We all know that even a complex computer system can be hacked. Unless the government implements a foolproof monitoring system dishonest dealers will succeed in gaming the LPG portal system.
The only way out of this mind-boggling edifice of supplying LPG is to start the process of liberalizing the LPG market as recommended by several high-level committees. Instead, an even more complex system is being developed. There is another layer of complexity as a result of the Congress party chief Sonia Gandhi asking the Congress ministries to give two more cylinders at the subsidized price. As in the power sector, each political party will compete with one another to promise higher subsidy to residential LPG consumers. This will end up creating huge financial burden to states and they will not be able to pay the oil marketing companies.
It is not possible to anticipate all the unintended consequences of new LPG quota system. While it may reduce subsidy burden to some extent, consumers will continue to face enormous problems in securing their LPG supplies in the future.