Study contests government's cooking gas subsidy claim

The International Institute for Sustainable Development, a Canada-based research organisation has contested the government's claim of savings through cash transfer of the cooking gas subsidy.

The transaction cost of paying the subsidy in cash has increased the money spent by the government and oil companies in selling cooking gas at less than market rates, it has argued.

The IISD cites a media report quoting Chief Economic Adviser Arvind Subramanian as saying in June savings of Rs 12,700 crore (Rs 127 billion) were estimated from sales and subsidy levels for 2014-15.

The research organisation, however, found the savings in 2014-15 were only Rs 143 crore (Rs 1.43 billion), mainly due to de-duplication and seeding of consumer numbers with bank accounts.

“The government has not so far provided calculations regarding either its claimed savings in 2014-15 or projected savings for 2015-16.

"The much-publicised figure of Rs 12,700 crore deserves scrutiny. Based on an analysis of publically available data this figure seems to be a large overestimate,” the report authored by Kieran Clarke, Shruti Sharma and Damon Vis-Dunbar of the IISD said.

The oil ministry did not respond to a questionnaire by Business Standard seeking comments.

“For seven-and-a-half months from April 1, 2014, until November 15, 2014, the scheme had no direct effect on the subsidy.

"The scheme only began to formally restrict access to subsidised LPG in mid-February 2015, and then only in the 54 districts selected in phase I.

"In the remaining phase II districts (92 per cent of all districts), non-registered households retained formal access to directly subsidised LPG until March 31, 2015,” the IISD has said.

Commenting on the study, a former director at Indian Oil Corporation said the government’s estimate of Rs 12,000 subsidy saved was plausible because cash transfers had weeded out 25 per cent of the customers.

“So 20-25 per cent savings out of Rs 45,000 crore (Rs 450 billion) of the annual LPG subsidy works out to Rs 12,000 crore (Rs 120 billion),” he said.

The IISD study says the reduction in subsidy expenditure in 2014-15 can be calculated by applying the initial reduction in subsidised consumption -- reported as 25 per cent -- to the total potential consumption available to the 23.3 million existing connections and then applying the relevant data on monthly under-recoveries and subsidy to calculate the estimated 'avoided' expenditure.

The IISD calculated the savings by multiplying the per cylinder subsidy in the months of February and March 2015 with the number of connections restricted by the scheme, 5.8 million, in 54 districts.

For February, the savings figure was halved as restriction began on February 15.