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Cylinder Blast -Lola Nayar
-Outlook

The cap on subsidised LPG has the UPA regime worried

Something Cookin’

    There’s definitely going to be a relook at the six-subsidised-cylinders cap
    Fear that LPG could cause a replay of the “onion impact” on 2014 polls
    Pressure from all parties for increasing number of subsidised cylinders
    Central government keen that states too share burden of extra cylinders
     But that could be tricky when discussing Centre-state revenue-sharing

Cylinder Pricing

    Subsidised cylinders 410
    Non-subsidised cylinders 900 +*
    Black market rate 1,100 +

Prices in Rs of domestic cylinders; * Linked to global prices

***

Thirty-six-year-old Lalitha, who works as a maid in Hyderabad, has been badly affected by the UPA government’s recent decision to limit the number of subsidised LPG cylinders. “The family has taken to using firewood to make tea so that the usage levels come down,” says this woman from a family of traditional Congress supporters. But now, she plans to vote for Jaganmohan Reddy’s YSR Congress—because there’s a buzz his party promises 12 subsidised LPG cylinders a year.

Given that two of the biggest household expenses for millions like Lalitha are power and gas bills, it’s hardly surprising that the UPA government’s decision to cap supply of subsidised cylinders for each family to six a year has become such an emotive issue. Now that the 2014 polls are within sight, many in government are worried that it could also become a potential political landmine. Some are comparing it to the infamous onion prices issue which cost the BJP government in Delhi an election.

For poor families struggling to make ends meet, that seems a well-merited comparison, given the steep jump they face from Rs 410 for a subsidised LPG cylinder to over Rs 900 for one that’s non-subsidised. For those without an LPG connection and dependent on the parallel market, buying a refill at Rs 1,100 upwards (against Rs 800 earlier) is hurting. No wonder many families are exploring cheaper alternatives to reduce cooking fuel expenses, going by reports from Delhi, Andhra Pradesh, Tamil Nadu and West Bengal.

The government is worried. The buzz in the petroleum ministry is that there is pressure (from Rahul Gandhi) to work out a more appealing package. “The cap of six cylinders a year is being re-examined, as in Jammu and Kashmir and the northeastern states there are genuine reasons for giving more subsidised LPG,” sources in the petroleum ministry say.

What about the rest of the country? “Cutting across political parties, by and large, there is demand to increase the number of subsidised cylinders. There is serious thinking on the issue. Whatever we decide, we will have to take the issue back to the Union cabinet, as we cannot take a decision at the administrative level,” the source states.

Already some of the Congress-ruled states, like Delhi, Kerala, Maharashtra and Uttarakhand, have announced plans to increase the supply of subsidised LPG cylinders with the state government picking up the tabs for additional subsidy.

Sources in the petroleum ministry and the PMO reveal that there is keenness that “more state governments should follow this pattern and share the subsidy burden. State governments’ dependency on Delhi for all subsidies is not possible. It should be mutually shared.” At the same time, sources admit that if the states take over more of the subsidy burden—whether for kerosene, LPG or diesel—the issue may crop up later when Centre-state revenue-sharing is taken up.

Pressure from states has been building up. DMK chief M. Karunanidhi had demanded earlier this month that “one LPG cylinder at subsidised rate should be given to the people every month and the Centre should come forward to help in this”. He buttressed this demand by referring to the recommendation of a parliamentary committee recommending 12 subsidised cylinders a year. In Tamil Nadu, the LPG price hike has led to an increase in the use of induction stoves—although, for now, power cuts are a serious issue.

The problem is that by linking non-subsidised cooking gas prices to the import parity price, it ensures that household bills rise with the frequent surge in global crude oil prices. As many states like Delhi push ahead with plans to wean households away from kerosene and raise cooking gas use to 75 per cent of households (from current levels of 55 per cent), many economists feel that in the short term, it is bound to have an inflationary impact.

“It’s amazing how some optimists continue to think that the inflation will come down,” says Prof D. Narasimha Reddy of the Centre for Social Development, adding that “suddenly, something which formed 5 per cent of your monthly expenditure has become 10 per cent”. Given the pressures at play, it’s a matter of time before the government serves up a face-saver.