News Release Details
End LPG subsidies
New Delhi 11-Sep-2007
The warped subsidy regime for domestic liquefied petroleum gas (cooking gas) calls for urgent policy attention; LPG pricing reform can no longer be allowed to languish in the cold storage. There is a fundamental flaw in the extant subsidy system, with subsidized prices available for all and sundry. Already, the sums involved are huge: under-recoveries on account of administered LPG prices added up to over Rs 28,000 crore last fiscal. But the fact is subsidies are almost entirely appropriated by the urban non-poor. And open-ended consumption subsidies are really reckless giveaways. The money, clearly, need to be better earmarked for the deserving poor, using smart cards for instance. In tandem with this, we surely need competitive, market-driven LPG prices to cut down on costs, improve availability and bring about better allocation of resources. The 2001 census revealed that 17.5% of households used LPG, with nearly 95% of the consumption in urban areas. We can hardly have "inclusive growth" with subsidies routinely diverted for consumption purposes by the city-dwelling non-poor. In parallel, we need proper market design so that multiple LPG marketers can competitively seek custom. In the present system, with LPG a cosy monopoly of public-sector oil companies, there seems to be a perverse incentive on the ground for cost-plus pricing. Back in 1993, as many as 3 5 private companies did register to sell LPG, following the LPG (Regulation of Supply and Control) Order under which private marketers could import, store, bottle and market LPG. But the market never really took off: the policy of subsidized LPG prices from PSU marketers meant that the opening-up policy reform was stillborn. Also, without any clear mandate for implementing open-access and common carrier principles in petroleum infrastructure, the 1993 order nipped in the bud competitive prices. Now that the regulatory Petroleum Board is in place, it needs to see that market conditions are more conducive for competitive price discovery and multiple players.
New Delhi 11-Sep-2007
The warped subsidy regime for domestic liquefied petroleum gas (cooking gas) calls for urgent policy attention; LPG pricing reform can no longer be allowed to languish in the cold storage. There is a fundamental flaw in the extant subsidy system, with subsidized prices available for all and sundry. Already, the sums involved are huge: under-recoveries on account of administered LPG prices added up to over Rs 28,000 crore last fiscal. But the fact is subsidies are almost entirely appropriated by the urban non-poor. And open-ended consumption subsidies are really reckless giveaways. The money, clearly, need to be better earmarked for the deserving poor, using smart cards for instance. In tandem with this, we surely need competitive, market-driven LPG prices to cut down on costs, improve availability and bring about better allocation of resources. The 2001 census revealed that 17.5% of households used LPG, with nearly 95% of the consumption in urban areas. We can hardly have "inclusive growth" with subsidies routinely diverted for consumption purposes by the city-dwelling non-poor. In parallel, we need proper market design so that multiple LPG marketers can competitively seek custom. In the present system, with LPG a cosy monopoly of public-sector oil companies, there seems to be a perverse incentive on the ground for cost-plus pricing. Back in 1993, as many as 3 5 private companies did register to sell LPG, following the LPG (Regulation of Supply and Control) Order under which private marketers could import, store, bottle and market LPG. But the market never really took off: the policy of subsidized LPG prices from PSU marketers meant that the opening-up policy reform was stillborn. Also, without any clear mandate for implementing open-access and common carrier principles in petroleum infrastructure, the 1993 order nipped in the bud competitive prices. Now that the regulatory Petroleum Board is in place, it needs to see that market conditions are more conducive for competitive price discovery and multiple players.