Increase in LPG cap: Is it the right move?

By Suhani Gupta

While economists are often unconvinced about most subsidies, politicians favor them in hope of increasing the political dividend. Government’s recent decision to increase the quota of subsidized cylinders from the present nine cylinders per household in a year to twelve cylinders per year came as substantial relief to many hassled by rising prices in the past years. This move is a part of the effort of the Congress party to win maximum support from people at a time when there is a clearly visible BJP wave in the country, and the Aam Aadmi Party is broadening its reach from merely Delhi to the entire nation.

However, one of the major questions that arise is that, will this move result in any meaningful political impact for the party? LPG cylinders are now being used in almost every third household of the country. In urban areas almost two thirds of households are dependent on LPG for cooking. Furthermore, rise in the prices of these cylinders has been a major cause of many disturbed household budgets.  Hence, this masterstroke by the party might result in increased electoral support from all income groups of the country, the poor, the middle-income group and the wealthy.

Following the above argument, it is appearing that the Congress has made a great move, in the right direction, however if we try to analyze the situation from a different perspective we will realize that this step will result in increased support to the party only if the population that the party is targeting has proper access to LPG cylinders, which is unfortunately, not the current scenario. Many rural households in the country still lack access to LPG cylinders; only affluent households have complete and proper access.

Another debatable question is, will this increase in the LPG cap actually benefit the masses?

On being asked whether an increase in the cap on LPG cylinders would “expand the misdirected subsidy”, the RBI governor responded by saying : “I believe there is a certain amount of population that can benefit from subsidized LPG cylinders. But beyond a certain point you are reaching people who can well afford to pay for it… Whose pocket is it coming from? It’s coming from the pockets of people who are getting subsidized.

The government’s present spending on LPG subsidy is around Rs. 46,000 crore per annum. According to Oil Minister M Veerappa Moily , raising the LPG quota will cost an additional Rs.5000 crore to the government. However, Moily had himself stated that 89.2% of the 15 crore LPG consumers use only up to nine cylinders in a year and only 10% have to buy the additional requirement at the market price. This means that the government is allowing for almost three additional cylinders per household. Also, this costly move prompted by the Congress Vice-President, Rahul Gandhi, comes at a time when the finances are under pressure in an economy with low growth and excessive public spending. Therefore, the economic impact of this move is pretty evident, however the political impact still seems to be quite ambiguous and is difficult to predict.

However as the 2014 Lok Sabha elections approach, any move by the party to garner more and more support, will count.

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