Ghost savings: Petroleum Ministry offers an explanation that generates more questions
The Petroleum Ministry now claims a saving of Rs14,672 crore by making assumptions that have nothing to do with subsidy benefits for LPG
The Ministry of Petroleum & Natural Gas (MoPNG) while clarifying on 'news items'
has in fact inflated the amount it claims to be saving due to its direct benefit transfer (DBTL or PAHAL) scheme. An analysis done by International Institute for Sustainable Development (IISD)
, using publicly available data, revealed maximum potential savings of Rs143.4 crore or just above 1% for FY2015 as against claims of Rs12.557 crore. IISD had calculated the subsidy component of reduced connections due to DBTL. However, the clarification issued by the Ministry says the claimed benefit for FY2014-15 work out to Rs14,672 crore based on its estimates of sales to fake connections, without offering any calculation of subsidy component on such connections.
"This is in connection with the news items on subsidies on LPG Cylinders pertaining to inflated claim of the Government about subsidy savings as a result of Pahal. In this connection, it may be mentioned that the subsidy outgo, and consequent subsidy savings, is a result of multiplicity of factors namely (a) Prevailing Crude Price; (b) Prevailing Exchange Rate; and (c) Tax Structure in various States," the Ministry says in its official press release issued on 12 October 2015.
It says, "As on 1 April 2015, there were 18.19 crore registered LPG Consumers and 14.85 crore active consumers implying a gap of 3.34 crore consumers which are duplicate / fake / inactive accounts blocked under PAHAL Scheme and related initiatives. If we take into account the quota of 12 cylinders per consumer and the average LPG subsidy of Rs.336 per cylinder for the year 2014-15, estimated savings in LPG subsidy due to the blocking of 3.34 crore accounts work out to Rs14,672 crore, during that year."
Number of Active Consumers in Pahal
The above statement from the Ministry says, as on 1 April there were 14.85 active consumers. On 4 March 2015, the Ministry in a release stated that as on 2 March 2015, 81% active consumers (11.74 crore) had joined the Pahal scheme.
In a written reply in Rajya Sabha on 18 March 2015, Dharmendra Pradhan, the Minister of State for MoPNG stated that as on 11 March 2015, 11.94 crore LPG consumers had joined the Pahal and out of this 9.81 crore had received permanent advance or subsidy in their bank accounts.
The next release on 13 August 2015, states that as on 13 August 2015, 13.9 crore LPG consumers have joined the Pahal scheme. So let us assume that as on 1 April 2015, there would be about 12 crore active consumers (between 2nd March and 11th March, the figure have gone up by 20 lakh but may have fizzled out, else with this speed it would have cross the total number of LPG consumers by 31st March). However, this does not mean that the 2.85 crore balance active consumers (14.85 crore less 12 crore) were without any subsidy. In fact, every active consumer continued to get subsidy either through Pahal or buying refill at subsidized price.
LPG consumers, who joined the PAHAL scheme, bought LPG cylinders at market price and received LPG subsidy (as per their entitlement) directly into their bank accounts. Those who had not joined the scheme at that time were given a grace period of three months and during this period continue to receive LPG refill at subsidized price. So, no real saving on this count.
Number of Cylinders Consumed By Households in a Year
The government provides 12 refill cylinders per year at subsidised rates. However, in several cases not every consumers buys 12 LPG refills. The national average, as per IISD, is 6-7 cylinders per household per year. So during FY2014-15, all LPG consumers, except those 'blocked' as per claims from the government, were receiving subsidy, which in other term means no saving on subsidy as claimed by the MoPNG's latest statement.
What is actual amount of subsidy?
The Ministry, now claims an estimated saving of Rs14,672 crore for LPG subsidy for 2014-15 just due to blocking of 3.34 crore accounts out of 18.19 crore registered LPG Consumers and 14.85 crore active consumers. This claim is made in a statement on 12 October 2015.
Now let us go back. In a statement on 4 March 2015, the Ministry press release stated that "An amount of Rs6,745.41 crore has been transferred since 15 November 2014 through 18.9 crore transactions." Note the date on which the scheme started.
Pradhan, the Minister, in a written reply told the Rajya Sabha that "The budgetary allocation [Revised Estimates (RE)] for the year 2014-15 for DBTL subsidy scheme is Rs2,500 crore, which has been transferred to OMCs. As on 5 March 2015, 11.89 crore active LPG consumers have joined the scheme and an amount of Rs7,256 crore has been transferred to the customers by oil marketing companies (OMCs)."
Based on the Minister's reply in the upper house of the Parliament, let us assume the government transferred about Rs8,500 crore to all active consumers, who had joined the Pahal scheme as on 31 March 2015. The number of active consumers as on FY2014-15 was 14.85 crore, as per the Ministry's latest statement.
So if 14.85 crore consumers received Rs8,500 crore as subsidy, then by what logic the government has saved Rs14,672 crore by blocking of 3.34 crore accounts?
Is there any real increase in commercial connections?
One of the main reasons for misuse of domestic LPG refill was consumption by commercial establishments like hotels. Due to price difference between domestic and commercial LPG refill, almost every commercial entity was (may be still) using domestic cylinders, either bought from black market, using dummy connections or by bribing the suppliers.
If as per the government's claim, 3.34 crore accounts were blocked, then there should be humongous growth in commercial connections. The number of non-domestic connections indeed grew, recording a growth in consumption of 28.2% in March from 26.9% in February 2015, as per data from Indian Oil Corp. At the same time, the consumption of domestic LPG refill fell to 3.1% in March 2015 from 5.8% in a month earlier. During April 2014 to February 2015, the number of domestic LPG consumers increased by 1.4 crore.
As IISD stated in its analysis, there is a need to have an informed discussion about the impact of DBTL or Pahal, both as a program itself and as a proposed model for the reform of kerosene and food subsidies, it is crucial that the government provides detailed and accurate data on the way that subsidy savings are calculated.