No LPG subsidy for families earning Rs 10 lakh plus: Govt

The Centre on Monday said that individuals earning Rs 10 lakh or more annually will not be eligible for subsidised LPG cyclinders. A statement from the Ministry of Petroleum and Natural Gas mentions that the new rule will be implemented from January 2016 onwards. This move falls in line with the Modi government’s intention of bringing down the LPG subsidy. The Prime Minister himself had led a campaign - ‘GiveitUp’ - earlier this year asking people to voluntarily give up their subsidy. As per the data, so far, more than 57 lakh people have given up their subsidy. But, this is just 3.5 percent of the total 16 crore customers using LPG. Centre, in its hope to further push up this percentage of customers as well to reduce its LPG bill has decided to implement the new rule. The subsidy saved from the ‘GiveItUp’ campaign is being utilized to provide LPG connection to below poverty line (BPL) families.In an interview with CNBC-TV18, Kirit Parekh, who authored the original report that called for deregulation of automotive fuel prices and streamlining of household fuel subsidies, discussed the implications of the decision.CNBC-TV18 also spoke with Narendra Taneja, head of the BJP's Economic Affairs Cell.Below is the transcript of Kirit Parikh and Narendra Taneja's interview with CNBC-TV18's Shereen Bhan.Q: Let me first ask you for your comments on the fact that the government finally seems to have bitten the bullet. So far it was only a voluntary scheme that the government had introduced. Now they are saying that if you have a taxable income of Rs 10 lakh or more annually then you will not be eligible for an LPG subsidised cylinder. Is this going to be meaningful as far as savings for the government is concerned?Parikh: At this stage I think the importance of this measure is that now government is willing to make it compulsory. So, far it was voluntary and the voluntary give up has worked quite effectively. Some 50 lakh people have given up their subsidies so far.The people who pay an income tax of more than Rs 10 lakh would not be more than 1 or 2 lakh in the country. Even if you say that some of these households may have more than one person, the total amount of people who would be affected by this, many of them may already have given up their subsidy.So, immediate impact of this measure will be very small. Of course it is a very important measure from this point of view, that the government has taken a step and is telling people that this is not just voluntary, there is now going to be more compulsion on it.Next would be that it is not just husband or wife's income more than Rs 10 lakh but together if husband, wife's income is more than Rs 10 lakh you can implement it. Gradually you should reduce it to Rs 5 lakh or even more. It seems to me that at least 30 percent of the people who are getting this subsidy can easily afford to pay for gas today particularly when the gas price difference is only about Rs 125 a cylinder. It is around Rs 1000 in an year that people will spend on LPG if there is no subsidy involved.So, I would certainly think that this is a good time to really give a signal that now some compulsion would be added and that we would gradually tighten this measure so that more and more people come under its ambit.Q: These are of course political decisions and these are tough political decisions. This was part of a budget proposal going back even two years but at that point in time the government had decided not to go down this path. Do you think now there could be political will to try and address the kerosene subsidy as well or do you think that that is going to continue to be off limits?Parikh: I believe that the kerosene subsidy is likely to remain off limits for some time because you need to provide some alternative. In many remote areas, people use kerosene for lighting. So, unless the government's Deen Dayal Gram Jyoti Yojana is covering everyone -- that it has covered almost all households [in the country] -- you can't say we won't supply subsidized kerosene to the poor. It is going to be difficult for a government to do and it is not just a matter of political reality but it is also a matter of the kind of inclusive society that we want, we do want people to have clean lighting and clean cooking fuel and good lighting.So, I believe that kerosene subsidy should be phased out in time depending on how your rural electrification goes up and maybe perhaps a better way to do is direct benefit transfer (DBT). DBT is certainly an effective way of providing subsidy and it would reach the poor more effectively than what current situation does because there is a lot of leakage taking place at the moment. So, DBT eliminates that motivation.Q: How would you see it, is this symbolic or is it significant? If you look at the number of people in India that pay a tax or fall in the bracket of more than Rs 10 lakh, it is 18 lakh people at best. It is really not going to do a lot for the fisc.Taneja: It is not symbolic, it is very significant. The government is very clear that when it comes to people who can afford to pay, they must pay. Let us not forget LPG is one commodity which is heavily imported. We import in the region of like 8-9 million tonnes. At the same time there are many constraints in terms of import, it is not only the currency but also the fact that our ports are not really in a position now to take more LPG imports. So, there is a serious constraint in terms of port accessibility. However more than that, those who can afford to pay, people who can afford to pay Rs 500 for Star Wars or those who can afford to go and order pizza at home for Rs 800, why should they be getting subsidy? The whole idea is basically to make LPG available to those who need that, particularly in the rural areas and also to make energy more affordable to those people who live below energy poverty line, people who don't have electricity and so on, that is the focus of the government.If initially it was voluntary and response was reasonably good, could have been better and now government has come out with this policy which is very democratic.Q: You might say all this but it is still not significant, like I said it is symbolic. You don't want people that don't deserve the subsidy to get it, but it is not going to do a lot for your fiscal deficit because like I said how many people are paying tax that fall into this bracket. According to the finance ministry it is only 13 lakh people from the Rs 10-20 lakh bracket. So, it is not significant. The question I want to ask is why not for kerosene. Is this a stepping stone to introduce such a measure to kerosene?Taneja: Kerosene is a different republic. First the idea is basically to create an environment in the country so that those who can afford to pay, they should be paying. This is one what the government has already initiated. There may be a couple of other moves in the months and years to come. At the same time, when it comes to kerosene, idea is basically incentivising solar which is going to take care of kerosene. We suddenly cant withdraw subsidy for those because many of those people maybe without any access to any energy. We cannot afford that as a country. So, the idea is when it comes to kerosene solar is going to be the replacement but when it comes to LPG since this is more imported and there are number of other implications.