Wednesday, August 20, 2014

Seriously? SMS Campaign Asks Us to Surrender LPG Subsidy

This has been posted by Mr. I P Bakpai on NDTV.
(Ishwari Bajpai is Senior Advisor at NDTV; he has been a journalist for 30 years, and has covered the elections since 1984.)
If you haven't got it as yet, you are very likely to get an sms from your gas company inviting you to join this group -  "Over 2,500 citizens have joined nation-building by giving up LPG subsidy". This voluntary surrender of the subsidy is the latest effort by the Government and the oil companies to reduce the whopping LPG subsidy of Rs. 46,000 crores. The hope is that playing on our sentiments of "nationalism" will bring out the best in us.  The oil companies' target is to get 1 crore of the 15 crore LPG users in the country to voluntarily give up the subsidy.
Having failed in their efforts to restrict the subsidy first to 6, then 9 and currently 12 cylinders a year per user,  oil companies realize that governments facing elections don't have much stomach for upsetting voters. The other option of reducing the subsidy amount on each cylinder has also met a similar fate. Today, the subsidy per cylinder is higher than what the consumer pays. In Delhi, the cylinder costs Rs.414 and the subsidy is Rs.470. In 2003, the cost of the same cylinder was Rs.241 and the subsidy was less than half. 
The likelihood of this sms campaign in persuading one crore users to opt out of the subsidy system is highly unlikely. 3.5 crore Indians pay taxes. That's it. We aren't a people that are going to race forward to surrender a subsidy. And a month after the sms campaign was launched, 2,500 people have obliged.  he conversion rate is very low.
Part of the reason for the low conversion is that there is an assumption by the oil companies that the consumers understand the context of the sms. Yes, most consumers know that LPG is subsidized. But do they know they are paying less than half the real value? Probably not. Do they know that the impact on their budget is going to be Rs. 600 a month if they opt out? Unlikely. Very few are going to click on the sms link to the oil companies' website to hear the truth about the subsidy.
Without telling the middle class and above that they really don't need a Rs. 470 dole from the government, how can oil companies hope for success?
If this is how the Finance Minister thinks he is going to reduce the oil subsidy from Rs85,500 crores last year to Rs. 63,5000 crores this year, he had better think again. May be, and just may be, if Narendra Modi had made an emotional call on Independence Day to nation to do this, the impact may have been greater....your country needs you to give up the gas subsidy!
But, since he chose not to, or perhaps no one suggested it to him, here are a number of steps the oil companies can take to push those who don't deserve the subsidy to exit this magic circle:

  1. All government servants including those in the armed forces and railways, PSU employees earning more than Rs. 30,000 a month ( an arbitrary number but close to making one a tax payer or class 1 and 2 employee) must within 30 days show proof that they have informed the oil company supplying their household with LPG that they are opting out.
  2. All income tax payers must report their household LPG consumer number in the return. This is then passed onto the oil companies who delete these people from the subsided list.
  3. In  a city like Delhi, where house tax rates are determined by "class of colony" no delivery of LPG at subsidized rates to Class A and B (maybe C as well).
  4. In other cities and towns, where this does not exist, it is not that difficult to know which are the more well-to-do areas and tell the consumers who live there that they will not get subsidized LPG.
  5. Work with the local motor vehicle authority and eliminate the 21 million car owners from the subsidy list.
  6. The delivery boy should check whether a house has an air conditioner. If it does, it does not need a gas subsidy. (This should be verified by another person.)
Obviously there will be a lot of overlap between these lists, but the government is more likely to get to the 1 cr number and save about Rs. 6000 crore from this than text messages.  
And finally, the government cannot duck doing something about  the level of subsidy, which has gone from just above Rs.100 per cylinder in 2003 to Rs.470 today. No policy that does not reduce this by at least half in the next year is going to have significant impact on the subsidy amount of Rs. 46,000 crores. The model used to reduce the diesel subsidy, which is now down to about a rupee, by raising the price month on month by 0.50p may be the way to go. Of course, for LPG it would need to be closer to Rs. 20 to have the desired effect in a year. 

If the government is serious of wanting the people to surrender their LPG connections, it should first ask all MPs and MLAs to give up all the perks they are getting from the government. Instead, the BJP government is thinking of increasing the slalries of all MPs.
What an irony?

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