3 lessons to implement cooking gas reforms

India's cities must switch over to piped gas leaving LPG cylinders, says A K Bhattacharya.

It was in 1955 that India saw the roll-out of liquefied petroleum gas (LPG) connections for use as domestic cooking fuel.

For many decades since then, LPG connections have been expanding their reach across the country.

By almost the middle of 2014, the total number of LPG connections was estimated at around 130 million.

In the next two years, however, the coverage saw a sudden spurt as the number of active LPG connections increased by over 37 million.

In other words, over 28 per cent of the number of LPG connections extended in about 60 years was added in just two years.

The periods chosen for comparison are significant for two reasons.

One, they compare the performance of the various petroleum ministers in those 60 years with that of the current petroleum minister, Dharmendra Pradhan, in the last two years under the National Democratic Alliance government.

Two, the two-year period from the middle of 2014 also coincides with a significant decline in international crude oil prices and a step-up in the coverage of the direct benefits transfer scheme for cooking gas distribution using the biometric identity-based Aadhaar system.

There is no doubt that an energetic and focused petroleum ministry, led by Mr Pradhan, has been a big help in spreading the LPG network.

But it must also be noted that this initiative was aided by the falling crude oil prices which meant a steady reduction in the burden of under-recoveries on the oil marketing companies and subsidies on the central exchequer, even as the network of cooking gas connections rose sharply in these two years.

The oil subsidies burden on the government in 2013-14 was estimated at over Rs 85,000 crore (Rs 850 billion).

This saw a steep fall to around Rs 76,000 crore (Rs 760 billion) in 2014-15 and further down to Rs 27,000 crore (Rs 270 billion) in 2015-16.

More than half of the petroleum subsidies go towards cooking gas for domestic use.

Last year, LPG subsidies were estimated at Rs 16,000 crore (Rs 160 billion).

The reduction in LPG subsidies has been achieved also with the spread of the Aadhaar-based direct benefits transfer scheme.

Almost 90 per cent of the LPG connections in the country have been covered under this system of transferring subsidies directly to the bank accounts of the consumers.

A district-wise monitoring of how the cash transfer scheme can cover more LPG customers has yielded huge benefits.

In addition, the wider coverage of the scheme has helped the government save on its subsidies bill.

An estimated Rs 21,672 crore (Rs 216.72 billion) was saved on account of LPG subsidy in the last two years as the direct benefits transfer scheme helped weed out duplicate and ghost connections.

The number of fake connections eliminated in the last one year is significant - over 33 million connections.

Like his claim of the world's biggest cash transfer scheme for cooking gas, Mr Pradhan can also legitimately describe the elimination of false LPG connections as one of the world's biggest clean-up of fake customers in just one year.

Supplementing this initiative was a campaign launched by Prime Minister Narendra Modi, asking the economically well-off sections of society to give up their subsidised gas connections.

Even the government had perhaps underestimated the response to the campaign.

In about a year or so, over ten million customers have given up their connections and the government has saved subsidies worth Rs 5,000 crore (Rs 50 billion).

It is possible that many of those who gave up their connections in response to the campaign may have been enjoying multiple connections and they realised that the coverage of the direct benefits transfer scheme would soon put an end to the practice of their having more than one connection per person or household.

Whatever be the actual reason, the campaign did reduce the burden of subsidies on account of the cooking gas sector.

Finally, a new scheme to offer subsidised cooking gas connections to the poor has been launched.

About 50 million poor families are proposed to be covered under the scheme in the next three years at a cost of Rs 8,000 crore (Rs 80 billion).

The government hopes that the task of identifying the poor would be less difficult by using a combination of methods - the Socio-Economic Caste Census, Jan-Dhan Yojana bank accounts, Aadhaar-based identity and the national LPG database - so that there is no misuse.

Only time will tell if that exercise helps achieve the desired goals of targeting the scheme only to the poor.

But there is no denying that, underpinning all these initiatives, there seems to be a pragmatic approach to improving the targeting of subsidies and expanding the reach of clean cooking fuel for the poor.

The approach certainly makes good politics, but whether it also makes good economics is a relevant question.

It will probably become good economics as well if Mr Pradhan pays attention to at least three areas while implementing the next phase of cooking gas reforms.

One, there should be no delay in removing subsidies on cooking gas for the rich and the criterion for the rich should not be determined not just on the basis of income, but on a set of identifiable physical assets.

Two, the principle of the direct benefit transfer scheme should be extended to all modes of cooking gas supplies including the connections that are to be issued to the poor families in the next three years.

This will reduce the burden on the oil marketing companies and leakage of subsidies.

Finally, Mr Pradhan must put in place a plan to strengthen the city gas distribution system across the country so that over the next few years, India's cities switch over to piped natural gas as cooking fuel, leaving LPG cylinders for smaller towns and villages.