The cap on the number of subsidised domestic LPG cylinders for each household annually is not one of the most populist measures taken by the Government, as it hits the household budgets. Besides, the move will face challenges because of dual pricing after six cylinders.
While strong opposition to the decision has led to speculation that the Government may increase the number to, say, 12, not a whisper about this was heard in the corridors of power.
After this decision, the remaining cylinders will be available at market price expected to be around Rs 746 a cylinder. The market rate will be notified by public sector oil companies every month.
Till now, domestic LPG has been a universally subsidised cooking fuel. There is no quota for supply, like in case of other subsidised commodities sold under the public distribution system where the scale of distribution and category of beneficiary is defined.
Not linked to consumption
Industry sources said the cap on the number of cylinders is not based on the past consumption pattern of the consumer. “Linking it to the past consumption pattern would have helped the oil companies in better monitoring,” sources said.
“A consumer always has the option to source the subsidised cylinder from a neighbour,” the source explained.
According to official sources, capping will also lead to reduction in misuse/diversion of subsidised cylinders, a challenge before the oil companies till now. This is so because the physical number of subsidised cylinders in circulation will come down. Almost 15 per cent of LPG cylinders were diverted for commercial use because of the price arbitrage, sources added.
Guess estimates show that a five-member household uses a minimum of 8-12 cylinders. At present, there are 14 crore domestic LPG customers. About 1.2 crore customers were added in 2011-12, indicating a growth of 10 per cent.
The Government assessment shows that 29 per cent customers consume four refills or less, 38 per cent five refills or less, and 44 per cent six or less annually. This, according to industry observers, is historical data.
The indigenous production of LPG is insufficient to meet domestic requirements and the shortfall is met through imports. To rein-in the subsidy by way of leakages, the interim report of the task force headed by Nandan Nilekani had suggested that implementation of direct transfer of subsidy in cash for domestic LPG in three phases.
In the first phase, it recommended capping the number of LPG refills per connection/per annum followed by direct transfer of cash subsidy by linking the LPG connections to Aadhaar number and thereafter, direct transfer of cash subsidy only to targeted customers.