New subsidy regime

The reintroduction of the direct benefits transfer scheme for the supply of cooking gas, after its withdrawal in March this year, is a welcome signal that subsidy targeting is back on the policy agenda. Unlike its UPA avatar, cash transfers will now be based on LPG consumers providing their bank account numbers, rather than Aadhaar numbers, to distributors. The change in approach is a way of addressing the Supreme Court ruling in March prohibiting Aadhaar from being made compulsory in the implementation of welfare schemes. The Centre has also drawn up a scheme to make an advance deposit in bank accounts in an apparent bid to offset the hardship of coughing up the market rate that poorer customers may face while making their first purchase under the new scheme. Those without a unique identification number may switch to Aadhaar-based bank accounts once enrolled. The modified DBT scheme is a further indication that the Modi government will use Aadhaar as a vehicle for the delivery of benefits and subsidies. Already, 60 per cent of the population has an Aadhaar number and, hopefully, it is only a matter of time that such things as LPG distribution and other welfare programmes become UID-driven. The reservations expressed by the Home Ministry about a full roll-out of Aadhaar have been thankfully overcome.

The reasons for this pragmatism are not far to seek. Through better targeting, Aadhaar-based transfers can reduce subsidies by about ₹50,000 crore (about 20 per cent of the overall subsidy bill) without hurting the poor and needy. Of this, the saving on LPG subsidy, which ran up a bill of over ₹46,000 crore last year, could be between ₹6,500 and ₹10,000 crore. The LPG savings will result from bogus consumers being weeded out, a cap on the subsidy amount (most LPG users are middle-class and above, anyway) and conservation efforts, leading to lower imports. It is estimated that a quarter of the LPG connections in Karnataka and a fifth in Andhra Pradesh are bogus. The first round of DBT brought down the diversion of subsidised cylinders for commercial purposes: subsidised cylinders accounted for about three-fourth of total LPG usage last year, against four-fifths in 2011-12.

However, this is only the beginning. It is necessary to promote the shift away from inefficient cooking fuels such as firewood to LPG in rural areas. To this end, the subsidy should be gradually diverted from the well-to-do sections, who account for at least 60 per cent of all LPG users. The Jan Dhan scheme and post office network can come in handy. Above all, it is necessary to have foolproof systems. Consumers’ reservations over sharing their bank account number with their distributors — pointed out by the Dhande committee report on LPG reforms this May — should be addressed. The stakeholders should come up with credible solutions. We cannot afford a second derailment of DBT.

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