Political opposition has forced India’s petroleum ministry to abort a novel proposal to reduce oil subsidies by charging market rates for LPG cylinders from all those who have permanent account number (PAN) cards issued by the income-tax department.
The government subsidizes each cylinder of liquefied petroleum gas by Rs177 for all users, irrespective of their economic status.
The ministry’s proposal assumed that PAN cards, essentially proof of taxes assessed, are held mostly by relatively wealthy people who could afford to pay full price.
That would mean people with PAN cards who buy the gas will have had to pay Rs473 for a cylinder.
In 2006-07 alone, under-recoveries—or the difference between the cost price and the consumer price—on petrol, diesel, kerosene and domestic LPG were Rs49,387 crore. Of this, domestic LPG cylinders accounted for Rs10,701 crore, or 27%. These huge under-recoveries are effectively borne by the government.
The logic behind the ministry’s proposal was to use the PAN card system to direct the subsidy only to people who needed it.
But politicians across party lines said they were concerned that the move would make it difficult for the lower and lower-middle income groups. Meanwhile, general elections are due in two years at the latest and the 50 million PAN card holders in the country are part of a vote bank that no politician or party can afford to displease.
“As of today, we do not see it (the proposal) happening and it is very difficult to enforce,” said a senior official at the petroleum and natural gas ministry, who did not wish to be identified.
Mohammad Salim, a Lok Sabha member of the Communist Party of India (Marxist), an important ally of the ruling United Progressive Alliance, said the proposal was simply not workable. “Targeted subsidies do not often reach the desired groups,” he said. “Instead, they create more avenues for corruption.”
There are around 94.6 million LPG cylinder connections in the country, of which 99.57%, or 94.2 million, are in homes. The remaining are in use by commercial establishments and institutions.
The big subsidy on domestic LPG encourages the diversion of domestic cylinders to commercial users such as hotels, restaurants and the automotive sector. In order to check this, the government has already introduced colour coding of LPG cylinders. Commercial LPG cylinders are now coloured oxford blue as reported by Mint on 11 May.
The government had lost out on an opportunity to rein in the (oil) subsidy by charging PAN card holders market prices for LPG cylinders, said Arvind Mahajan, executive director at KPMG, the accounting and audit firm. “In the current environment, a lot of reforms are getting stuck because of political considerations.”
However, even Mahajan admitted that the petroleum ministry’s proposal would have run into logistical difficulties because its database (of individuals with LPG connections) and the income-tax department’s database on PAN card holders were not connected. “If the consumer says that he is not a PAN card holder how does one check it?” he added.
(Ashish Sharma contributed to this story.)