Now, Centre to cap subsidy on cooking gas

The new system will entail a periodic revision in the price of subsidised LPG cylinders so that the subsidy remains fixed

Taking the next step in liquefied petroleum gas (LPG) pricing reforms, the National Democratic Alliance (NDA) government has decided to cap the subsidy on domestic gas cylinders. So far, there was a cap on the number of subsidised cylinders alone, not on the subsidy.

Union Petroleum Minister Dharmendra Pradhan told Business Standard a new system of fixing the subsidy would be designed after discussions between his ministry and the Department of Expenditure. Currently, consumers pay less than half the market price for up to 12 subsidised cylinders. “The cap on cylinders will be the same, but the deliverable price will change. Till now, the price was the same, but subsidy used to change,” he said.

Last year, the government and its companies bore a revenue loss of Rs 46,400 crore (Rs 464 billion) on account of selling LPG below market price.

Unlike the system put in place by the United Progressive Alliance (UPA) government, through which consumers were allowed 12 subsidised LPG cylinders, without any limit on how much loss would be borne by oil marketing companies, the new system will entail a periodic revision in the price of subsidised LPG cylinders so that the subsidy remains fixed.

So far, consumers were paying market price for consumption beyond 12 cylinders. In Delhi, such non-subsidised cylinders cost Rs 880 each, against Rs 414 for a subsidised cylinder.

While petrol prices were decontrolled in June 2010, the UPA government had introduced phased decontrol in diesel prices, as well as a cap on subsidised LPG cylinders. Through capping and direct benefits transfer for LPG, the government sought to prevent diversion of domestic LPG for commercial purposes.

By modifying direct benefits transfer for LPG, the NDA government has done away with the requirement of linking bank accounts and LPG customer numbers with Aadhaar numbers. It has allowed direct credit of subsidy into the bank accounts of consumers, without mandatory linkage to Aadhaar.

Pradhan said by initiating reforms in the petroleum sector, the government had tried to balance the interests of the common man with those of the economy. "The market has taken the government's big-ticket reforms positively," he said.