Cash transfer for LPG likely to save up to ₹14,000 crore in subsidies

Direct benefit or cash transfer in bank accounts for domestic gas cylinder (LPG) is estimated to save ₹12,000-14,000 crore in subsidies. On October 18 (Saturday), the Government announced a modified scheme wherein the subsidy will be transferred into bank accounts irrespective of it being seeded with Aadhaar.

According to a Finance Ministry official, DBT (direct benefit transfer) will plug leakages and check pilferages which, in turn, will save subsidy. At present, a cylinder filled with 14.2 kg of domestic LPG is sold to a registered consumer in Delhi at a subsidised ₹414. Out of this, the distributor gets ₹40.71 as a commission, while the remaining of ₹373.41 goes to oil marketing companies. But this is almost half the cost.

Subsidy mechanics According to the Petroleum Planning and Analysis Cell of the Oil Ministry, the desired sale price, as on October 1, should be ₹800.63/cylinder. The difference between the desired price and the price paid by a consumer is compensated in two ways.

One is a direct subsidy of ₹22.58/cylinder by the Central Government, the other is cash assistance from a combination of oil exploration companies and the Centre. These two ways are used to subsidise 12 cylinders a year for every consumer.

The Government feels that direct subsidy transfer will ensure that genuine consumers get the benefit. Before the previous UPA Government put a brake on direct subsidy transfer in Aadhaar seeded bank accounts, the oil marketing companies had already weeded out over eight lakh fake connections.

There are differences over the actual number of total gas connections, with the Ministry putting the number at 16 crore and the National Sample Survey Organisation, at nine crore.

Another official said that direct transfer of LPG subsidy will get a further boost through the Pradhan Mantri Jan Dhan Yojana, which aims to include every un-banked household. Till now, over six crore accounts have been opened under the scheme against the 7.5-crore target by January 26 next year. Now, the Finance Ministry is hoping that a total of 10 crore bank accounts will be opened under the scheme.

Fuel reforms Meanwhile, various economic research agencies have hailed the Government’s decision on diesel deregulation and transfer of subsidy into bank accounts. Rohini Malkani of Citi Bank, in a note, said diesel deregulation is likely to reduce fuel subsidy by ₹60,000 crore annually (0.5 per cent of GDP). “In addition, the leakages in kerosene and LPG subsidy can be plugged with implementation of DBT,” she added.

Nomura, in a note written by Sonal Varma and Aman Mohunta, said diesel accounted for 0.04 per cent of CPI (retail inflation) and 4.7 per cent of WPI inflation (wholesale inflation). Hence, the direct impact of lower diesel prices is likely to be significant on WPI (nearly reduction of 30 basis points) but almost negligible on CPI.

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