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HomeIndiaModi govt plans to scrap LPG subsidy under PAHAL as economic woes...

Modi govt plans to scrap LPG subsidy under PAHAL as economic woes hit revenues

The PAHAL scheme was first launched under the UPA government in 2013, and was then revised and relaunched after the Modi government came to power in 2014.

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New Delhi: The Modi government is planning to abolish the subsidy households get for Liquefied Petroleum Gas (LPG) or a cooking gas cylinder under the PAHAL scheme, ThePrint has learnt.

The government has been forced to consider stopping this subsidy to curb its spending and rein in the fiscal deficit as growth and revenues have been hit by tough economic conditions, a top government official said.

The move is also being considered at a time when under-recoveries of oil marketing companies (OMCs) have mounted due to selling of petroleum products at subsidised rates and the government is finding it hard to foot the bill of PAHAL, which is a voluntary scheme, said the official who spoke on the condition of anonymity.

“While the amount of the subsidy is small, it is important to rationalise the overall government spending. The ministry of petroleum and natural gas is preparing a proposal to this effect,” he added.

The Centre has earmarked Rs 800 crore under the PAHAL scheme in Budget 2022-23. However, the overall LPG subsidy budgeted for this fiscal is Rs 5,812 crore, which also includes free gas cylinders distributed to women living below the poverty line, under the Pradhan Mantri Ujjwala Yojana.

The finance ministry in its monthly economic review report for May said that as government revenues take a hit following cuts in excise duties on diesel and petrol, an upside risk to the budgeted level of gross fiscal deficit has emerged.

“Rationalising non-capex expenditure has thus become critical, not only for protecting growth supportive capex but also for avoiding fiscal slippages,” the report had said.

The fiscal deficit for 2022-23 is estimated at 6.4 per cent of the Gross Domestic Product (GDP) or Rs 16.61 lakh crore.


Also read: Indian economy has a twin deficit problem. To counter it, govt needs to juggle growth & stability


The PAHAL scheme

The PAHAL scheme was first launched under the United Progressive Alliance (UPA) government in 2013. It was revised after the Modi government came to power and relaunched in two phases first in 2014 and then a complete rollout in 2015 to plug leakages in the disbursement of the LPG subsidy.

Under the scheme, consumers pay the market price of a domestic LPG cylinder, and the subsidy is directly transferred to their bank accounts.

According to the Indian Oil Corporation website, consumers in Delhi currently pay Rs 1,053 for a 14.2 kg cylinder. In 2020, the government had said in a statement that the subsidy amount for Delhi consumers had been set at Rs 291 per cylinder.

Soon after the rollout, the government realised that there was lack of accountability, resulting in poor consumer service and diversions leading to leakage of LPG subsidy.

When the scheme was being revised, it was decided that consumers who avail the subsidy benefits will have to link their Aadhaar numbers with the LPG database and the bank account database, to become Cash Transfer Compliant (CTC) customers.

“The main aim of the PAHAL (Direct Benefit Transfer for LPG consumer) scheme is to curb the diversion of the subsidised LPG,” the official quoted earlier said.

The LPG subsidy under the PAHAL scheme is available only to those consumers or their spouses whose taxable income is not more than Rs 10 lakh in a year.

In February last year, Union Minister for Petroleum and Natural Gas Dharmendra Pradhan had, in a written reply in the Rajya Sabha, stated that as on 1 February 2021, 1.08 crore LPG consumers had given up their subsidy.

At the time of launching the scheme, the government had said: “In keeping with the approach of trusting the citizens, this will be given effect initially on self-declaration basis while booking cylinders from January 2016 onwards.”

“The idea was that eventually a lot of individuals would voluntarily give up the benefits of the scheme as their income improves,” said the government official.

Concerns over the scheme have emerged because, apart from the lack of awareness among consumers over the huge subsidy burden, the pricing of domestic subsidised LPG below the market price has also led to diversion of subsidised LPG for commercial purposes, which unnecessarily adds to the subsidy burden of the exchequer.

In June, petroleum secretary Pankaj Jain had said that no subsidy has been paid on account of cooking gas since June 2020 and the only subsidy that is provided is Rs 200 per cylinder under the Pradhan Mantri Ujjwala Yojana.

Oil Minister Hardeep Singh Puri in the same month said “subsidies by definition are not designed to get entrenched and increased. Subsidies by definition have to be depressive”.

Eliminating wasteful spending has also gained significance after Prime Minister Narendra Modi has repeatedly spoken about states giving freebies to the public, apparently in an attempt to curry favour with voters.

(Edited by Nida Fatima Siddiqui)


Also read: Modi’s LPG reform was different. It helped the poor immediately, no trickle-down timeline


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