No rethink on subsidised LPG: Moily

-The Business Standard


Oil minister says Parikh report sound but government has to take realities into account; to proceed with Direct Benefits Transfer in 291 districts from January despite SC order

Union petroleum minister M Veerappa Moily said there'd be no raising of the present cap on the number of subsidised cooking gas (LPG) cylinders a household was entitled to in a year.

In the wake of severe electoral reverses for the ruling Congress party, he was noncommittal on whether there would be an increase in the present pace of rise (of 50p a litre each month) in the subsidised price of retailed diesel, to ensure a complete shift to the market price before the end of the government's tenure in May next year. There has been speculation on what the government would do to assuage voters in the period between now and the country's general election in May.

His ministry would be readying a proposal for exempting state transport corporations from buying diesel at market rates, he said while addressing journalists here.

Under current policy, consumers are eligible for nine subsidised refills of cooking gas in a year. Subsequently, they have to buy at the market rate, currently Rs 555 a cylinder higher than the subsidised rate. In the case of diesel, oil marketing companies have been raising the retail price by 50p every month for retail buyers, for a phased decontrol of the price. The market price is charged for sale through bulk outlets.

An experts' panel under Kirit Parikh, former member of the Planning Commission, had called for an immediate Rs 5 a litre rise in diesel and Rs 250 a cylinder more for LPG .

Moily did not directly answer a question on whether an increase in petroleum prices had impacted the ruling UPA coalition's performance in the recently concluded elections in four states and the city of Delhi but added, "Election results will not drive the UPA government or the Congress to panic. (We) will not act in panic. These decisions have been taken in the national interest and we will continue to act in the best interest of the country and its people."

The minister said the Parikh panel's suggestions were "very good", as they'd help restore fiscal balance. "Economically, that is the right decision but how practical is it, how we can apply (it), is something we have to take a view on."

Diesel is currently sold at retail outlets at a revenue loss of Rs 9.9 a litre. At 50p a litre more each month, it could take a year and a half to wipe out the entire loss.

"If the country has to go forward, reform is a must. But the question is whether we can implement what has been recommended; we have to balance between the consumer (interest) and government revenue. A balanced view will be taken on the (Parikh) report," said the minister.

In the current financial year, the revenue loss on diesel has varied from as low as Rs 3.5 a litre in May to as high as Rs 14.5 a litre in mid-September.

The total of under-recovery, or revenue loss, on diesel and cooking fuel (LPG and kerosene) could be around Rs 147,500 crore this financial year. This could lead to the government exceeding the budgeted Rs 65,000 crore for total fuel subsidy Burden in the 2013-14 budget.

Director Benefits Transfer

The government plans to move ahead with the scheme in 107 additional districts from January 1 next year, despite a September 23 Supreme Court order saying the Aadhaar number could not be made mandatory and no one should "suffer" because he did not have it. The petroleum minister said the scheme was a great success with Rs 1,615 crore transferred into the bank accounts of 12.7 million LPG consumers till December 10.

291 districts are expected to be covered under the scheme making Aadhaar number mandatory for LPG subsidy.

To overcome the cascading effect of value-added tax on the market rate of LPG cylinders, Moily said state governments have been asked to charge VAT at specific rates rather than as percentage of the sale price. Under the DBT scheme, cylinders are sold at market rates and consumers get a cash transfer from the government for the subsidy amount in their bank accounts. VAT ranges between zero and five per cent. "Only Puducherry has responded to the request by making 0.5 per cent VAT for the DBTL market and one per cent for non-DBTL market," said Moily.

The additional VAT burden on account of selling LPG cylinders at the market price to DBTL consumers would be Rs 25-30. On the issue of income tax being charged on the subsidy amount being credited into bank accounts, Moily said he would take up the matter with the ministry of finance.

RIL bank guarantee

Moily was also asked about the proposal to take a bank guarantee from Reliance Industries Ltd in the controversy on falling output levels and their cause at the Krishna-Godavari gas fields. He said comments had come from the ministries of finance and law and the Planning Commission on the idea. "It is yet to be put up to me. But we are working on it," he said.

RIL might have to give a $9-billion (Rs 55,650 crore at present rates) bank guarantee if the government approves a proposal to monetise the differential between the targeted and actual production. The ministry of finance feels such a proposal could dilute the government stand in the proposed arbitration with the biggest private sector company in the oil sector.


The Business Standard, 14 December, 2013, http://www.business-standard.com/article/economy-policy/no-rethink-on-subsidised-lpg-moily-113121300719_1.html

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