Consumers with income above Rs.10 lakh to lose gas subsidy

New Delhi: About 1.9 million consumers will be deprived of subsidized cooking gas starting on New Year’s day, with the government deciding on Monday to limit the benefit to those with annual incomes below Rs.10 lakh.

The move, which follows the National Democratic Alliance (NDA) government’s decision to withdraw subsidy on diesel in October 2014, could save the exchequer about Rs.200-300 crore a year.

The potential saving is based on the current market price of liquefied petroleum gas (LPG) and the subsidy on each cylinder of LPG and premised on the assumption that each consumer who will be denied the subsidy from 1 January would be using 5-8 cylinders a year.

The move is expected to have a persuasive effect on other well-off consumers to voluntarily give up their cooking gas subsidy, resulting eventually in larger savings to the exchequer. Prime Minister Narendra Modi has urged consumers who don’t require the subsidy to give it up so that it can be diverted to poor households.

“For a change, the NDA government is thinking about the common man. Ultimately, subsidies need to go to people who deserve them,” said Congress spokesperson Rajeev Gowda.

“The (NDA) government needs to give people clarity over how this will get implemented and what all it entails,” added Gowda.

The Congress-led United Progressive Alliance (UPA) initiated the move to better target subsidies through direct benefit transfers, using the Aadhaar unique identity numbers as the anchor, Gowda said.

Income-tax department data show there are about 1.9 million assessees with taxable income of Rs.10 lakh (out of a total 47 million assessees).

A large section of consumers who depend on agriculture for a living, traders and self-employed people who may either be earning tax-exempted income or may not be reporting their income in full have the option to continue to enjoy the subsidy.

Aam Aadmi Party spokesperson Deepak Bajpai accused the NDA government of showing limited understanding of public policy. “Government is yet to come up with a structured policy for extending and withdrawing subsidies in different sectors. It is a half-hearted effort to win a headline for the day,” Bajpai said.

The Modi administration’s campaign to encourage the well-off to give up the LPG subsidy has already prompted 5.75 million customers to do so.

“In keeping with the approach of trusting the citizens, this (decision) will be given effect initially on a self-declaration basis while booking cylinders from January 2016 onwards,” said a statement issued by the oil ministry.

In Delhi, a 14.2kg LPG cylinder comes at a retail price ofRs.608, on which the central government pays a subsidy ofRs.198, as per data provided by the largest fuel retailer, Indian Oil Corporation.

With annual sales of about 1.32 billion cylinders a year, the total LPG subsidy given by the government works out to about Rs.26,268 crore.

In this year’s budget, the finance ministry allocated Rs.30,000 crore for oil subsidy, out of which Rs.21,140 crore was earmarked for LPG subsidy, which is transferred to the bank accounts of consumers under the direct benefit transfer scheme.

The ministry said that of the 163.5 million LPG consumers in the country, subsidy is being transferred directly to the bank accounts of 147.8 million people.

In 2012, the UPA government first capped the total number of subsidized cylinders available to a household at six, but later raised it to nine and then to 12 by January 2014.

“The subsidy saved from the ‘GiveitUp’ campaign is being utilized for providing new connections to the poor families. This enables provision of LPG, a clean fuel, to poor households by replacing conventional fuel such as kerosene, coal, fuel wood and cow dung, relieving the poor of the hardships and the health hazards from such fuel,” said the oil ministry.

The move to partially deregulate LPG prices comes at a time when the Indian basket of crude oil is at $34, the lowest in a decade.

“At least in 2016, there doesn’t seem to be an upside for oil prices. They, however, will not remain low for ever. The government seems to be making use of this window of opportunity to achieve reforms in the oil sector,” said D.K Joshi, director and chief economist at research firm Crisil.