Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.This is an entirely free service. No payments are to be made.
Liquefied Petroleum Gas (LPG) is a source of clean domestic cooking energy which is subsidized in India to ensure affordability amongst the people. Over the past decade, there has been a significant rise in the consumption of LPG in India. For 2015-16, LPG sales were up 8.6% at 19.5 million tonnes. The annual subsidy outlay has more than tripled in the last ten years. In addition to this, the problems of multiple connections in many households and a skewed distribution of LPG subsidies among the urban and relatively high-income classes are the challenges faced by the LPG subsidy program.
The Government first launched the Direct Benefit Transfer for LPG (DBTL) in 2013 on a pilot basis, under the scheme the subsidized LPG cylinders are sold at market rates and consumers are entitled to receive the subsidy directly into their bank accounts. The government however had to close them down due to customer grievances. After recommendations of an expert committee, the modified DBTL scheme was rechristened and launched as Pratyaksha Hastaantarit Laabh (PAHAL) scheme.
The modified scheme saw the linkage of the Unique Identity scheme i.e Aadhaar which helps in verifying the user identity. With the benefit directly transferred to the user’s bank account, this results in zero wastage and leaves no scope for misuse of the money.
The government’s prime concern was to effectively distribute the subsidy i.e. the goal with subsidy reform was not to do away with subsidies, but bringing in efficiency so that they flow directly to the intended beneficiaries. The public distribution system in place was highly ineffective and thus resulted in huge costs for implementation.
According to a survey by the Council for Energy, Environment and Water the scheme has largely been successful and its objectives have largely been met.
The Jan-Dhan Yojna with its mission to ensure access to financial services has resulted in openings of bank accounts. This has been the highlight for the scheme since the rural households are generally unbanked and this will help in providing benefits for other welfare schemes as well.
The challenge for the government is now to get those families who are rich and still avail of the subsidy out of this scheme. The government began a “Give it up” initiative wherein the households which are well off were asked to voluntarily give up their connections. This has got a poor response. According to the Economic survey, the better off households account for 91% of the LPG consumption and hence 91% of the LPG subsidy. while the poor account for only 9 per cent of LPG consumption and hence only 9 per cent of subsidies go to them.
The lack of financial inclusion and information gaps suggest that the scheme still needs plenty of improvement. The Government must ensure that none of the deserving households are excluded from the subsidy benefit due to lack of proper information, difficulty in enrolment or lack of access to banking services.
Unfortunately, there is a large number of people who still are not able to avail of these LPG services and a sustained effort would be required to bring such consumers within the schemes fold, especially in rural areas where there is an increase in the penetration of LPG and who have difficulty in accessing the banking services.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!