Those underestimating LPG savings don't get it
By: The Financial Express | October 10, 2015 12:54 AM
The best solution to LPG subsidies, there can be no doubt, would be one where the government slowly reduced them as was done in the case of diesel by the UPA—over a period of time, as the fuel finally got deregulated, there would be zero subsidies.
The NDA, however, chose not to do that and put a cap on the subsidy instead—of course, with global prices falling, the government pays out a lot less than the Rs 18 per kg cap; so when prices start rising again, the government will pay more than the Rs 99 it is paying per 14.2kg cylinder right now. None of this, however, should take away from the massive success achieved by linking subsidies to bank accounts and Aadhaar—it is based on this that the government claimed it had saved Rs 12,700 crore in FY15 and is likely to save around half this amount this year.
This number, however, has been challenged by the Candadian International Institute for Sustainable Development (ISID) and widely publicised in Indian newspapers. ISID puts the actual savings at Rs 143 crore, a fraction of what the government claims, much to the delight of many opposed to either it or the Aadhaar programme. The analysis, however, doesn’t account for the fact that savings take place at two levels.
Assume there are 100 persons who can theoretically get a food subsidy of R100 per month, but when the government decides to get the biometrics of these people, and runs this through the Aadhaar de-duplication software to remove fake or ghost subscribers, this gets reduced to 75.
Now, assume the government tells people that they have to go to the ration shop and get their biometrics checked in order to get this subsidy—let’s say that only 70 people actually bother to go to the shop. The most accurate way to calculate the saving is 30 x 100 or Rs 3,000 per month—the ISID method, however, would calculate the subsidy as 5 x 100 or Rs 500. To get back to LPG, the government’s maths was simple: 3 crore subscribers were removed from the rolls and with an average per cylinder subsidy of Rs 361 in FY15 and a cap of 12 cylinders per person, this works out to Rs 12,996 crore. You could argue, rightly, the actual consumption per registered user is only 7, so the subsidy saving is R7,581 crore, but there is no doubt the savings are substantial.
Indeed, were the ISID methodology to be used, Aadhaar is really a waste of time—whether it is a breach of privacy is really moot then. In various states like Andhra Pradesh where considerable progress has been made in taking the biometrics of those availing of PDS, for instance, the number of people entitled to benefit from it fell from 4.53 crore to 3.86 crore after de-duplication, or by 15%. If roughly 3.7 crore of these people actually take the trouble of going to the PDS shop each month to get rations, that works out to a saving of just 4%, a number that doesn’t really add up to much, especially in contrast to the 18% the conventional methodology throws up. Whether you are in favour of Aadhaar or against it, let’s not get the arithmetic wrong.
First Published on October 10, 2015 12:17 am
