Cheap gas for whom?

Subsidies in India are structured in a manner that often benefit the relatively well-to-do. The Centre’s move allowing a 20-30 per cent reduction in prices of piped/compressed natural gas (PNG/CNG) for consumers in cities such as Delhi, Noida, Surat, Vadodara, Indore, Lucknow and Hyderabad is one of a piece. The problem with this, as well as last week’s decision hiking the annual entitlement of subsidised LPG cylinders from nine to 12 per household, is not merely that such subsidies promote inefficient resource use by distorting incentives for consumers and producers. They also promote inequity, as they largely benefit select city-folk and the small numbers of those who purchase more than nine LPG cylinders a year.

True, the CNG/PNG segment consumed just over 8 mmscmd of the estimated 133 mmscmd of natural gas available from domestic production and imports in India during 2012-13. Till now, about 5.75 mmscmd was being supplied from domestic sources and the balance through imported gas that is three times or more expensive. What the Centre has done now is to ensure that the entire demand from this segment is met by domestic gas. This means that the likes of Indraprastha Gas Ltd would be able to slash prices of CNG from ₹50.1 to about ₹35/kg and piped gas from ₹29.5 to ₹24/standard cubic metre. The issue here cannot be brushed aside on the ground that only a small quantity of 8 mmscmd of gas is being subsidised. The real question that needs to be asked is: Why should an already cheap fuel source be subsidised further? Even before the current reduction, the running cost for a vehicle powered by CNG was less than three-fourths of that fuelled by diesel. The same applies to PNG vis-à-vis LPG. Also, CNG/PNG facilities are available only in a few cities. If extended to more centres — subsidised prices will certainly spur demand — CNG/PNG consumption would be far greater than 8 mmscmd.

There is also a related issue. From April 1, the price of gas for domestic producers is supposed to double from the existing average of $4.2/mmbtu, taking it closer to import parity levels of $13-14. This, in normal circumstances, would entail increasing CNG/PNG rates as well. But having reduced these, will the Centre permit them to rise once again as the UPA prepares to fight an election? This is a question the ruling Congress has probably not even considered. But the fact is that India’s gas requirements are eventually only going to multiply and these cannot be met unless domestic producers get the price that incentivises them to step up output.

COMMENT NOW