Modi Urges The Rich To Forego Cooking Gas Subsidies Voluntarily

India’s government has long attempted to protect its poorer consumers by controlling the prices of fuels such as diesel, kerosene, and liquefied petroleum gas (LPG, used as a cooking fuel in the country). But inefficient implementation of the subsidy regime has resulted in a sizeable fiscal deficit as India imports about 80% of its oil.

Recently, Indian Prime Minister, Narendra Modi appealed to citizens to not take subsidy if they can afford to buy LPG at market price.

Speaking at Urja Sangam 2015 (literally “Energy Summit”), Modi shared that until now, about 280,000 consumers have voluntarily given up their LPG subsidy, and this will lead to a saving of at least ₹1 billion.

The government has set itself a target that ten million well-off consumers will do away with their subsidy on cooking gas by the end of the year. At the last count, India had about 153 million LPG consumers.

Of late, the country has been trying hard to transform itself from a carbon subsidy regime to one of carbon taxation. In the budget announced for 2015-16, India announced it would double the tax it levies on coal, for the second time in two consecutive years.

On another front, the government has launched a new system of subsidy transfer to prevent diversions and black marketing of the subsidized cooking gas by weeding out duplication and plug leakages. Known as “Direct Benefit Transfer” (DBT), it involves direct transfer of cash subsidies in the bank accounts of the beneficiaries. The direct subsidy transfer scheme has also been rolled out for programs other than subsidised LPG.

By February 2015, almost two-thirds of the LPG consumers had migrated to the DBT system, making it the world’s largest direct benefit transfer system. Other countries to have experimented with such a system include China, Mexico and Brazil.

DBT alone is expected to shave off 10% to 15% from the ₹400 billion LPG subsidy program.

The Oil Minister, Dharmendra Pradhan, has already urged ministers, MPs, MLAs, senior government officials, and executives of public sector companies to give up their subsidies.

If the government manages to reach its target to persuade 10 million consumers to give up their LPG subsidy, it could potentially save the exchequer another $580 million a year, at current costs.

In the 2015-16 budget estimates, funds earmarked for LPG subsidy have been almost halved, and reduced from the current ₹400 billion to ₹220 billion.

Referring to India’s 77% dependence on energy imports, Modi said , “If we become successful in reducing import by 10% in 2022, by achieving 10% growth in domestic production, then I can assure you that by 2030 we can reduce this import to 50%”.

Aided by global crude oil price plunge, the lowest since 2009, the government in October last year deregulated diesel prices. As a result, retail price of the fuel now follows the international oil prices.