The Hindu : Scandalous decision on LPG

Online edition of India's National Newspaper
Monday, Mar 18, 2002

Opinion

Opinion - Editorials

Scandalous decision on LPG

THE GOVERNMENT'S DECISION, taken under pressure from within the NDA and from the Opposition, to roll back by 50 per cent the recent price hike of LPG reflects a scandalous distortion of priorities by the political class. First, there was no case whatsoever to moderate the price hike since the LPG subsidy has long outlived its original purpose. Second, and more serious, if at all there was any case for a moderation of the reduction of subsidies, it was that of kerosene — which is the cooking fuel of the poor. But kerosene prices have not been touched for the simple reason that the Government was more interested in meeting the NDA and Opposition demands made on behalf of the vocal urban middle and upper middle-income classes. As if this was not enough, the Opposition has now demanded a total withdrawal of the LPG price hike. The Government's latest decision will increase the annual subsidy bill by Rs. 700 crores and as global prices rise the subsidy too will grow. It is not the burgeoning of the subsidy outlay that is important, but what the decision says about the eagerness of the Indian political class to protect LPG subsidies, even as it prefers to be quiet about policy measures which have a bigger impact on the welfare of a much larger population.

The LPG subsidy dates back to the early 1960s when households needed to be encouraged to switch over to what was then a new cooking fuel. That motive for a financial incentive has disappeared, but the subsidy continues. Periodic efforts since the mid-1980s to do away with the subsidy have always floundered on one touchstone — that it will hurt India's poor. Nothing could be farther from the truth. While the consumption of LPG has been increasing very rapidly in recent years, the overwhelming majority of India's homes still does not use LPG. Two-thirds of India's households use instead either kerosene or, worse, biomass of one kind or the other. The LPG subsidy has continued for so long because it is zealously guarded by the powerful urban salaried class and its representatives in Parliament. The decision in the budget to only halve the subsidy now and phase it out over a period of two to three years was evidently not enough for the so-called champions of the poor. At this rate the LPG subsidy can never be removed. Compare the hue and cry about the LPG subsidy with the very muted concern expressed about the irrational and short-sighted decision taken in the budget of 2000-01 to raise the prices of subsidised rice and wheat, a decision which did in fact hurt the poor. If there was no rollback then of food prices but there has been one now of LPG prices, it only shows which class exerts a greater influence on Government decisions. It is, of course, also possible that the Government knew it would be forced to take a step back and so announced a larger price hike than it wanted to effect. If that is the case, it speaks more of cynical decision-making than of a Government determined to take hard decisions.

Kerosene, unlike LPG, is the poor housewife's fuel, and progressive price increases in recent years have hurt her badly. But the problem is more in kerosene supply than price. A large proportion of kerosene meant for the PDS is either diverted to the open market or smuggled to neighbouring countries. That does not mean a cut in the kerosene subsidy does not matter. It does matter if the limited amount of kerosene legally sold through the PDS is going to be more expensive as well. The challenge here then was to maintain supplies and target the subsidy to consumers who depend on this cooking fuel for their household needs. However, the forces that have been successful in pressuring the Government on LPG prices cannot be expected to recognise the subtle differences between LPG and kerosene subsidies or between the importance of the subsidy on kerosene and its supply through the PDS.

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