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LATEST NEWS UPDATES | Cooking gas and kerosene subsidies call for urgent reform

Cooking gas and kerosene subsidies call for urgent reform

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published Published on May 19, 2012   modified Modified on May 19, 2012

-The Economic Times

Open-ended consumption subsidies on petroleum products have wrought havoc on government finances.

Reportedly, the trio of public sector oil marketing companies have of late blocked some 3.8 million parallel household connections of liquefied petroleum gas (LPG), in a bid to rationalise the subsidy outgo.

The move to weed out multiple LPG connections does make sense. But we need to keep the big picture in mind and overhaul the pricing and market-design regime for both the subsidised domestic fuels. There is certainly no reason why households with piped natural gas connections also need access to domestic LPG, which is hugely subsidised , to the extent of over 50% of deemed costs.

Multiple connections anyway need to be done away with, so as to cap subsidy levels. Note that the annual subvention on account of LPG (read, cooking gas) is in excess of Rs 30,000 crore. Most of it is simply usurped by the non-deserving non-poor , or diverted for commercial purposes.

The actual economic costs would be far higher in terms of wrong incentives and ill-effects like corrupt informal networks supplying cylinders at a premium. The subsidy on domestic LPG needs to be phased out. Instead, we need multiple parallel marketers competing to seek custom, offering improved service and providing other add-ons. It is high time that the cosy market in LPG was opened up.

We need proactive norms for sharing of infrastructure for storage, piping and supply. At present, there are about 130 million household connections of LPG, with prices sticky and thoroughly opaque. The effective public sector monopoly merely means cost-plus margins.

What is clearly required is to reform the highcost market by roping in private enterprise and multiple players for sustained increase in productivity and efficiency gains. In parallel, the subsidy payout for domestic kerosene needs to be direct, via biometric cards and such, within a reasonable time frame.

Much of the subsidy on kerosene, costing in excess of Rs 30,000 crore, is diverted with impunity to adulterate automotive fuel. Fuel price reform can no longer remain on the back burner.

The Economic Times, 19 May, 2012, http://economictimes.indiatimes.com/opinion/editorial/cooking-gas-and-kerosene-subsidies-call-for-urgent-reform/articleshow/13286084.cms


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