The Government should have created a genuine market for LPG cylinders by empowering consumers to actively shop around.
After fixing an annual cap of six subsidised LPG cylinders for every household, with purchases above this attracting “market rates”, the Government seems to be in rollback mode. The public sector oil marketing companies, which had announced a Rs 26.5 hike in the price of non-subsidised cylinders from November 1, have already been told to put it “on hold”. Moreover, the six subsidised cylinders a year cap is itself under “review”. It was apparently based on an erroneous calculation, which did not account for the fact that only 10 crore out of the country’s 14 crore LPG connections are genuine. If the total number of LPG cylinders sold were divided by these bonafide consumers, their average requirement would be higher at nine per year. This belated admission amounts to the Government not only knowing how many fake connections exist, but also having an idea of the number of cylinders that these account for every year, allowing the consumption by genuine consumers to now be precisely reworked. But shouldn’t all this have been suitably factored into the original decision? Or, is it a case of realisation dawning on the Government that the move has implications for the main ruling party in the assembly polls in Himachal Pradesh and Gujarat?
Clearly, LPG decontrol has been totally botched up, for which the Government has only itself to blame. To start with, it wasn’t a great idea to allow non-subsidised cylinders to be sold at so-called market rates, when there is no ‘market’ at all. A market where all the players are state-owned firms — and they announce uniform prices every month – isn’t any market really. That exists only when there are competing suppliers, with consumers able to exercise genuine choice. In this case, the Government should have attempted to create a market for LPG cylinders first. How? By transferring cash — equivalent to the difference between an indicative market rate (say, Rs 900) and the subsidised price (Rs 400) multiplied by the number of proposed subsidised cylinders (six/nine) — directly into the bank accounts of all LPG consumers. That would have, then, laid the ground for all LPG cylinder purchases to take place at market rates, making it attractive for new suppliers to enter as well. The new entrants, willing to operate on smaller margins and offering delivery without long waiting times, would have triggered competition similar to what Indian consumers have experienced through private mobile telecom operators. In due course, even the cash subsidy could be restricted to only the poor and vulnerable households.
The above system, including cash transfers through Aadhaar-enabled bank accounts, would be easier to implement in LPG than in distribution of subsidised foodgrains or fertilisers. Unlike in the latter, the consumers of LPG are far less in number and overwhelmingly in urban areas, making it more amenable for tracking. Instead, what we have now are effectively three LPG ‘markets’ — for subsidised, officially non-subsidised and diverted/blackmarketed cylinders — that would only create undesirable arbitrage opportunities without benefiting any class of consumers. It only betrays lack of imagination on the Government’s part, which is also exacting a heavy political cost.
Keywords: six subsidised LPG cylinders, household, market rates, rollback mode, non-subsidised cylinders
Comments:
Politicians are most opportunist folks created by God. They know when to make announcements for their own benefit. If we see the Govt announced the decision to limit Gas cylinders on the name of reforms. It was a time when Govt was being criticized by all, was facing a downgrade. Thus to keep the rating agencies at bay they showed them a carrot of reforms, but soon announced that Congress ruled states would provide subsidy up to 9 cylinders, a appeasement policy. Now when everyone is thinking that Govt is moving ahead with reforms with elections round the corner, again Govt is thinking about changing the policy, all this to garner votes in two states. This type of attitude wont help anyone, neither the economy nor the common man.Its high time these politicians think above their political gains and do something good for the country.
(1)Verification of LPG consumers was long overdue. If it is completed in the right spirit, it would be useful to get rid of those consumers who were selling the subsidized or using them for non-domestic purposes. (2) As you have pointed out in the article, cash transfer of subsidy to the poor is a welcome step. (3) It is unfortunate that political parties are more interested in electoral gains from petroleum products pricing. Citizens want implementation of a rational and long term policy with regard to prices of diesel, petrol kerosene and LPG. Crude price is unlikely to fall in international markets. In the light of this fact Citizens are unable to understand why our major political parties are not ready to agree to put in place right policy about fixation of prices of petroleum products. Implementation of such a policy is the correct approach to deal with debate about prices of LPG and other petroleum products.
Agree, let there be only open market , and those who are eligible to get subsidy be paid direct, to their bank account. Don't forget, oil companies are not competitive. They get reimbursed one way or another. That would mean wasteful, unjustified spend by oilcompanies. It is high time to check, audit and challenge, every title, job, job
descricption and salaries paid to people. Hey do they need sales promotion managers. Would the oil companies, publish names of staff, qualification, job description and cost to company on the web. Finally, like you said, let any one and every one, including foreign companies, come in and sell LPG here. Let market forces decide open market prices, and subsidies go direct to consumers from Government. Aadhar based subsidies, is a good start to consider
MERA BHARAT MAHAAN!
First you give 14Cr. Connections, with average 10Cr. COnnections with TWIN CYLINDERS. So, there are at least 25Cr. GAS Cylinders, and the bulk supply to commercial usage is equivalent to around 10Cr. such cylinders.Hence the total gas requirement would be equal to 35 , say with all wrong calculations/pilferages etc... is equal to 40Cr. Cylinders. If all of them start the usage on day 1, the supply required is 40*14.2=568Cr. Kilos or 5.68MillionTonnes of Gas.This is to be supplied for every 21days, as per earlier understanding. So, in a year, it is roughly around 18 such cycles.Hence the maximum supply required is around 1000Milliontonnes of gas per annum.But the actual conumption is less than this, say on domestic side , around 600MT and on commercial side, the rest of 400MT to Commercial usage per annum.
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