Necessary evils

If Railways needs to fill vacancies; cooking fuel subsidy is difficult to scrap

The Indian Railways’ plan to fill up 132,646 vacancies and the rising subsidy cost of cooking fuel may be two unrelated developments but they are both expected to impact the government and railway finances this year. The reason for the government not ignoring either of them, or deciding to go forward with railway recruitment and subsidise cooking fuel has a lot to do with the 2019 elections. Offering government jobs is a sure-shot way of ensuring popularity, while keeping cooking stoves lit at controlled prices helps in insulating a huge swathe of consumers from high oil prices even while the retail prices of transport fuel touch the roof.

In this din of rising retail prices of petrol and diesel, the issue of LPG and kerosene subsidy is getting lost though it has a direct impact on the government finances. Rising oil prices, which will inflate the government’s subsidy bill for cooking fuel, will hit the economy in two ways. One, increase the fiscal deficit and two, pull down the value of the rupee further. Business Standard on September 17 reported a 66 per cent increase in cooking fuel subsidy. Based on the current prices of LPG and kerosene, the subsidy on the two types of fuel is expected to touch Rs 414.78 billion in 2018-19 compared to the budgeted target of Rs 249.32 billion.

Part of the reason why cooking fuel subsidy will increase substantially is that the government had under-provisioned for it by anticipating just a Rs 5-billion increase over the Rs 244.6 billion estimated for 2017-18. According to the latest estimates, LPG subsidy is likely to increase 73 per cent to Rs 352.57 billion against the budgeted Rs 203.77 billion for 2018-19. Similarly, kerosene subsidy will increase 36 per cent, from Rs 45.55 billion to Rs 62.21 billion during the year. 

Amid these huge numbers what is getting ignored is the small 25 paise increase in the subsidised kerosene price and Rs 1.40-2.34 hike in domestic LPG cylinder rates every month. This increase was taking place even when international prices were low. For September, consumers paid Rs 499.51 for a cylinder since Rs 320.49 is credited as cash subsidy into their bank accounts. Similarly, a litre of kerosene is priced at Rs 26.61 while the subsidy of Rs 16.16 is borne by the government. 

While economic prudence will advise against bloating the fuel subsidy bill, it is also important for a welfare state to wean its citizens away from unhealthy and polluting fuel and promote the use of cleaner fuel. The over 55 million LPG connections given out to below-poverty-line consumers as part of the Pradhan Mantri Ujjwala Yojana need to be seen from this perspective. Along with these new consumers, the government subsidises 12 LPG cylinders for those that have an annual family income of Rs 1 million and less.

Quite similar is the state of Indian Railways that saw its operating ratio touch 111.51 per cent in the first four months of 2018-19. A measure of efficiency, this highest ever operating ratio means that it is spending Rs 111.51 to earn Rs 100 mostly because of a lower growth in traffic volume and a higher outgo on account of increased pension liability and working expenses. 

Though recruitment exams to fill up railway vacancies have already taken place, it is unlikely that the full impact of the increase in manpower on railway finances will be felt this year itself. Like subsidised cooking fuel, creating employment — especially when there is allegation that safety had been compromised due to vacancies — is an important social tool for the government. 

The two developments put the finances of the government and the Railways under stress but the state can hardly afford to take its eyes off the vulnerable. The Railways cannot possibly compromise on safety by remaining understaffed; it will probably have to look at controlling wasteful expenditure or cut down on expansion and electrification. Similarly, while prices of petrol and diesel continue to rise and cause discomfort to owners of private vehicles, a policy that protects the more basic cooking fuel needs of citizens will likely continue.