On Monday, the NDA government announced that taxpayers with an annual income of more than Rs 10 lakh will not get subsidised LPG cylinders from the New Year. Under the current policy, all households are entitled to 12 cylinders of 14.2 kg each at a subsidised rate of Rs 419.26, while the market price of each cylinder is Rs 608. The move will deprive approximately 1.9 million consumers of subsidised cooking gas. According to various reports, the move could save the exchequer Rs 200-300 crore each year. Suffice to say, the potential saving estimate is based on the current market price of LPG. The move also follows the Centre’s announcement earlier this year, asking “well-off people” to voluntarily give up using subsidised LPG and instead buy cooking fuel at market price. The government made an LPG subsidy payout of Rs 40,551 crore in 2014-15. During April-September, the subsidy outgo stood at Rs 8,814 crore. With falling oil prices, the payout this year is expected to far lower. To cut subsidy bill and reduce fiscal deficit, the previous regime at the Centre led by the Congress party had restricted the number of subsidised domestic cylinders per household to six every year in September 2012, before raising the cap subsequently to 12. The move, according to the government, will free up a substantial chunk of the LPG subsidy amount for the poor. The benefits for the poor come in the form of subsidised LPG cylinder instead of cooking over firewood, which releases poisonous fumes. It is imperative to understand that the scheme is intertwined with the Centre’s financial inclusion scheme, popularly known the Jan Dhan Yojana. As expected, the rollout of the direct benefits transfers (DBT) scheme for LPG – where subsidies are directly paid into consumer bank accounts –will add further impetus for the Modi government’s flagship financial inclusion scheme. The Centre’s move to deny subsidised LPG cylinders to taxpayers with an annual income of Rs 10 lakh will have two key benefits. First, it will cut the centre’s overall subsidy burden; especially at a time when India is looking to cut its fiscal deficit. Suffice to say, the Modi government is making the most out of falling oil prices. Second, the move aims to direct the subsidised resources to the right beneficiaries. The gross mishandling of the subsidy outgo in the past has damaged the country’s exchequer rather than ensuring the welfare of the poor. Despite making the right noises, the NDA government needs to give people clarity over how this will get implemented and what it entails.
In order to propel the DBT scheme and the Jan Dhan Yojana forward, the Centre has co-opted the UPA government’s unique identification programme, otherwise known as Aadhar. In October, after a long and protracted battle, the apex court allowed the use of Aadhar number for all state and central schemes, including the Mahatma Gandhi National Rural Employment Guarantee Scheme and Jan Dhan Yojana, among others. Suffice to say, it was a major victory for the government. In its interim order on August 11, the court had restricted the use of Aadhar number (unique identity number) to paying subsidies only for the public distribution system and cooking gas and kerosene. The latest order did come as a source of relief for millions of poor beneficiaries, who had registered under the unique identification scheme of the Indian government. The interim order had put a hold on the disbursement of these funds. As of now, 920 million Indian citizens have been allotted Aadhaar numbers, according to the Unique Identification Authority of India (UIDAI). The stated aim of the Aadhar scheme is to weed out fakes and duplicates and ensure that no eligible person suffers or is denied any benefit or service. However, Attorney General Mukul Rohtagi had to clarify to the court that the Aadhar scheme will remain voluntary and that no intended beneficiary will be denied access to the above government schemes if they do not possess the unique identification card. Suffice to say, it was an important clarification primarily because one problem of linking Aadhar to government schemes like MNREGA is that it may end up being exclusionary in nature. As discussed in these columns earlier, a recent World Bank report states that identification systems can quickly turn into a source of social exclusion; one only need to look at the abuse of Below Poverty Line cards in India. However, if the Centre can address and resolve some of the key concerns surrounding Aadhar, including privacy issues, its LPG subsidy scheme can end up becoming a smash hit for the poor, if not the middle class.