Pro-poor LPG reform fetches promotion for Pradhan

LPG sector reforms have helped prune fiscal deficit by cutting down the huge LPG subsidy bill and have ameliorated the quality of life for poor women.

When Prime Minister Narendra Modi had entrusted the Ministry of Petroleum to Dharmendra Pradhan in 2014, few would have thought that Pradhan would alter the LPG cooking gas landscape in India in such dramatic fashion. And fewer still would have been able to imagine the far reaching socio-economic and political consequences of such a transformation.

What has been Pradhan’s principal contribution? Pradhan’s rapid and reliable execution of the Pradhan Mantri Ujjwala Yojna has been his biggest achievement. In other words, by making available the LPG cooking gas cylinder to hitherto deprived families under the Pradhan Mantri Ujjwala Yojna, the minister has successfully met the challenge of providing cheap and clean domestic fuel for cooking to poor households.

However, it would be instructive to go through the sequence of reforms that the Narendra Modi led NDA government has brought about in the LPG cooking gas sector, before embarking on the Pradhan Mantri Ujjwala Yojna (PMUY).

When the BJP government assumed office in 2014, LPG subsidies were misdirected, with the rich and upper middle classes cornering most of the gains; there were many fake and duplicate connections and subsidised LPG was being diverted to commercial and industrial segments. A 2013 IMF staff paper reported that the bottom 3 deciles (i.e. the lowest 30%) gained very little from subsidised LPG. Their monthly welfare gain from LPG subsidy was Rs 10 per capita, compared to Rs 80 for the top decile (i.e. the top 10%).

With a view to prevent the aforesaid leakages and target subsidies more effectively, the BJP government launched the Pratyaksh Hastantarit Labh (PAHAL) in November 2014, in 54 districts and extended it to the entire country on 1 January 2015. PAHAL (or PAHAL DBTL, in English), the first in the series of LPG reforms, meant the direct transfer of cash LPG subsidy to the bank accounts of the deserving beneficiaries. An intensive exercise was carried out for identifying duplicate/fake/ghost/inactive domestic LPG connections, and as on 1 April 2015, 3.34 crore of such connections were identified and blocked under PAHAL. PAHAL’s success was evident in the huge 40% increase in commercial LPG cylinder sales between April 2015 and March 2016, in comparison with the pre-PAHAL commercial sales, thus indicating how subsidised residential LPG supply was being diverted for commercial purposes. Clearly, the world’s largest direct benefit transfer scheme or PAHAL made the process of LPG subsidy distribution more transparent by plugging subsidy leakages.

The second major reform in the LPG sector began on 27 March 2015, when Prime Minister Narendra Modi innovatively nudged the better-off LPG cooking gas consumers to forgo their subsidy on LPG cylinders. This “Give it up” movement aimed at diverting the LPG gas subsidy to the poorer sections by encouraging people who could afford to sacrifice their LPG cooking cylinder subsidy; every subsidised LPG cylinder forsaken was used to provide an LPG connection to a poor household. Pradhan quickly followed up on the PM’s appeal by networking across the political spectrum, persuading even opposition leaders to give up their LPG subsidy and also oversaw a very effective and savvy campaign to spread the message of “Give it up”. As a consequence, over 1.2 crore consumers gave up their LPG subsidy under the scheme.

Not stopping at “Give it up” and gambling on PM Modi’s goodwill, Pradhan boldly and logically moved further. Limiting the sop to the really needy, Pradhan’s department laid down policy that households with an annual income above Rs 10 lakh would be ineligible for the LPG subsidy.

Buoyed by the successes of the “Give it Up” and PAHAL, Prime Minister Modi launched his government’s third big LPG sector reform, the Pradhan Mantri Ujjwala Yojna (PMUY), which aims at providing free LPG connections (with the government paying upfront for the stove and cylinder) to 5 crore poor households by May 2019. Within a year of its launch in May 2016 at Ballia in Uttar Pradesh, over 2.2 crore households were covered under the Ujjwala Yojna; far exceeding the target of 1.5 crore laid down for the said period. Clearly, Dharmendra Pradhan’s ministry has implemented the PM’s pet project with swiftness.

What are the consequences of these LPG sector reforms? One, it has helped prune the fiscal deficit by cutting down the huge LPG subsidy bill. It is estimated that in FY 2014-15 and FY 2015-16, about Rs 22,000 crore was saved because of “Give it Up” and PAHAL. Two, the PMUY ameliorates the quality of life for poor women by enabling smoke free and pollution less domestic cooking fuel. Three, PMUY’s political spinoffs for Pradhan’s party in the Uttar Pradesh March 2017 Assembly elections cannot be discounted; as on December 2016, UP with 4.5 million PMUY connections was the biggest beneficiary state in India.

It is estimated that in FY 2014-15 and FY 2015-16, about Rs 22,000 crore was saved because of “Give it Up” and PAHAL.