<b>Kanika Datta: Firing on six cylinders</b>

The annual LPG quota won't really impact heavy users or encourage them to use less cooking gas, and nor does it reward the frugal user of resources. If anything, the annual quota could encourage malfeasance

Many middle class households in India are dismayed at the prospect of a six-cylinder annual limit on the subsidised LPG they use as cooking fuel. For most, it will mean paying market prices, which are more than double the subsidised rate, for extra cylinders they buy over this limit.

Actually, if they did the math, this isn’t really such an imposition. Assuming that the average household of four runs through a cylinder every month, that could mean an expenditure of Rs 4,500 (Rs 750, the market price, multiplied by six) a year for six extra cylinders. But the incremental expenditure is just Rs 2,106 (the subsidised price of six cylinders minus the market price), or Rs 175.50 a month.  

Reports also suggest the six-cylinder limit will not impact 44 per cent of domestic consumers who consume six cylinders or less a year. Given this, and the fact that the calculations above show that most households won’t take a substantial hit, it is worth wondering whether a quota-based subsidy policy is really a forward-looking way of capping the fuel and cooking gas subsidy.

The saving this move will yield for the exchequer for this fiscal year is Rs 5,300 crore, which, together with the increase in diesel prices, will still keep the subsidy at an unsustainably high Rs 1,67,000 crore. 

Indeed, subsidy-saving is one element of the fuel pricing issue; but surely it is time to use pricing as a means to influence consumption patterns in the interests of conservation and climate change too? Coming back to LPG, the six-cylinder quota won’t really impact heavy users or encourage them to use less cooking gas the way deterrent pricing would. Equally, it does not reward the frugal user of resources. If anything, the annual quota could encourage malfeasance.

For instance, as an appalling cook who uses about a cylinder and a half in a year, this quota means I could now avail myself -- should I so choose -- of the opportunity of selling four cylinders to other more frequent users at a premium. It would be no problem doing so either. A thriving black market in LPG already exists, and it is difficult to see distributors substitute this with a stringent monitoring mechanism.
Oil marketing company franchisees also follow a policy of disconnecting users who don’t apply for cylinders after six months, as I discovered to my chagrin. True, reopening the connection is a relatively painless process. It involves filling in a form with the stock excuse: “out of office”. But it is still an irritation that takes up at least half a morning of travelling and waiting. Should I and consumers like me  not be incentivised because we use less?

This argument has often been used in the context of diesel and petrol and the illogic of subsidising the middle class and the rich and their luxury cars and SUVs. But it applies as much to a whole range of scarce resources – water, for instance, or power. Instead of providing water virtually free or nominal rates in urban India, should it not be made an expensive resource that will force families to curb consumption, just as it does in countries like Scandinavia and Germany? Similarly, should power rates not be oriented to usage patterns?

Policy makers tend to ignore such policies because they are unlikely to be popular with middle class vote banks. It’s so much easier to dole out tax payer money in the interests of immediate gains. But as our burgeoning oil import bill and galloping climate change shows, India suffers in the long run.