Prime Minister Narendra Modi has launched an ambitious programme to provide subsidised liquefied petroleum gas (LPG) connections to 50 million poor families. The connections will be allotted in the name of women members of households that are living below the poverty line (BPL). It is a three-year programme - the Pradhan Mantri Ujjwala Yojana - and would cover 15 million households in the first year, for which a budgetary provision of Rs 2,000 crore has already been made. The cost of the entire programme, to be borne by the Union government, will be substantial at Rs 8,000 crore. While launching the scheme at Ballia in Uttar Pradesh, Mr Modi criticised former prime ministers for only focusing on the "ballot box" and not framing schemes keeping in mind the interest of the poor. There is little doubt that what Mr Modi has launched will immensely benefit the poor - indoor air pollution caused by unclean cooking fuel used by the poor is estimated to cause 1.3 million premature deaths in the country every year. Use of LPG will reduce pollution and improve the quality of life. But there is no denying that the programme will also give a big boost to his and his party's prospects in the coming elections.
But the problem is that these political gains come at a significant cost to the exchequer. Worse, it also reflects how the scheme may have ignored the need for LPG pricing reforms and well-targeted delivery of subsidies. The first big challenge for the scheme would be to identify the poor households so that the subsidised cooking gas connections could be allotted to the deserving persons only. In the absence of proper and authenticated data on BPL population, the government is relying on the Socio-Economic Caste Census data, but that may not be enough and the scheme may remain poorly targeted or misused. There is also the challenge of sustaining the scheme by strengthening distribution channels and ensuring supply of smaller-sized gas cylinders for the poor. Second, the scheme is not likely to use the Aadhaar-based direct benefits transfer (DBT) system that facilitates transfer of subsidies to the beneficiaries' bank accounts. Thus, the government would be directly compensating oil companies for their losses on account of the subsidised gas connections. This then would suffer from all the attendant problems of leakages and delayed reimbursements, undermining the finances of oil marketing companies. The advantages of an Aadhaar-based DBT scheme that insulates the oil companies against reimbursement delays would be lost.
A more troubling question pertains to the future direction of LPG pricing and reform of subsidies. The government is yet to withdraw subsidies on cooking gas for the economically well-off sections of society, even though it has made known its intention to limit the subsidies only to those earning below an income threshold. Instead, it is relying on cooking gas consumers to give up their subsidies voluntarily. Already 10 million households are said to have given up the subsidy benefit on cooking gas. While subsidy savings through such voluntary actions may help reduce the subsidy bill, this surely cannot be a long-term and sustainable strategy. With international crude oil prices still low, the government should lose no time in fixing a criterion based on both income and assets, so that subsidised LPG supplies to those above that threshold are phased out.
