The Indian Objective
One of the most critical challenges for the Indian economy is to curb the massive subsidy bill that has remained a roadblock to the government’s bid to bring down the fiscal deficit. In view of this tough task, Prime Minister Narendra Modi government embarked on a critical mission to streamline the cooking gas (LPG) subsidy with a two-fold objective:
a) Reduce the LPG subsidy and b) To utilise the savings to provide gas connectionsto poor households in India and promote the use of clean and environment friendly energy in India.
Prime Minister Modi has taken a keen interest in this initiative right from the beginning. The government launched a mass media campaign with personalised messages from the Prime Minister himself to encourage people to give up LPG subsidy on their own. The government branded it as the ‘GiveítUp’ campaign. In the first phase of the campaign, an appeal was aimed primarily at the well-to-do households for voluntarily giving up LPG subsidy. While the personal message by none other than PM of the country generated keen interest among people about the issue, the impact was not substantial. Of the 160 million LPG consumers, only around 5.8 million LPG consumers opted out of LPG subsidy voluntarily heeding the call given by the Prime Minister. While, this was not enough, but a beginning has been made.
Moving ahead from this modest beginning, the government implemented the next stage of the campaign. While in the launch stage several consumers gave up LPG subsidy voluntarily, but for a speedier implementation of the project, it was decided that those who can afford the cooking gas cylinder at market price should not be the target consumers for the government subsidy. C consumers in the higher income bracket would get LPG cylinders at the market rate. Therefore, if the consumer or their spouse had taxable income of more than Rs 1 million during the previous financial year computed as per the Income Tax Act, 1961, then the LPG subsidy benefits will not be extended. The fact that 97 percent of LPG was being consumed by the richest 30 percent of households also lead to the decision to curtail the list of intended beneficiaries and it was decided that only needy and poor households should be the targeted beneficiaries of government subsidy when it comes to essential items like cooking gas cylinder.
In addition, the government has also decided to rollout the Direct Benefit Transfer (DBT) scheme to provide cash transfer directly to the poor household. The main objective behind this move was to plug the revenue leakages accruing due to administrative or systemic inefficiencies and the benefits should not go to any ‘ghosts’ accounts. The government has named this scheme as ‘PAHAL’.
With the implementation of the PAHAL Scheme, the subsidy is being transferred directly to the Bank Account of 147.8 million LPG Consumers. As per the Economic Survey 2016, currently over 151 million beneficiaries receive LPG subsidies via DBT and Rs 29,000 crore ($4.3 billion approx. with an exchange rate of 1USD equals Rs 67) have been transferred to beneficiaries.
There is no doubt that the initiative has been a great example of political will and administrative reform.
The Insights to Maldives
While subsidies have helped the Maldives move from Least Developed Country (LDC) status to a Developing Nation status the main purpose of it no longer holds true and, similar to India, is a contributor to our fiscal deficit.
Subsidies are provided only on basic staples – the ‘normal’ grade of rice, flour and sugar. For these same products packaged and processed at ‘better’ or premium bands no subsidy is provided and as such no advantage in terms of price is passed on to the consumer.
Along the path to our graduation from LDC to Developing status, a majority of household have moved away from purchasing basic staples and moved towards the more premium bands.
Therefore it makes strong fiscal sense to take away the subsidies on staples – as it won’t affect the prices most of us are paying for those staples – and with a population much smaller than India we should be able to implement any such change, and reap the benefits, faster.
As with the lessons learned from the case in India there may be some underprivileged who may be affected adversely by such a change and, before implementation, we should move to provide them with the proper assistance. Any such assistance can be provided for through existing mechanisms and agencies like the National Social Protection Agency.
Like in India we will face our unique challenges in implementing changes surrounding something that has been prevalent for so long. But, like in India, it will stand to benefit us in the medium and long term.
Dr. Mohamed Haneef (@Dr_Hanyf on Twitter) is a construction expert currently based in the United Arab Emirates.
Why India is implementing a program to give up its LPG; what can the Maldives learn from their outlook?
