A half-done reform: 

A half-done reform

Context:

The government has informed Parliament about its decision to completely do away with the subsidy offered to cooking gas used for household purposes.

Introduction:

  • Recently, public sector oil companies were authorized to incrementally hike the “effective price” of LPG cylinders until the entire subsidy is wiped off by March next year.
  • In July last year, the oil companies were given the green signal to increase the effective price of subsidized cylinders by Rs 2 a month.

Key points:

  • The fall in global crude oil prices, which has reduced the price difference between subsidized and non-subsidised cooking gas in the local market, has already eased the burden on the government.
  •  In the recent Union budget, the government allocated about Rs 25,000 crore towards oil subsidy, which is a fourth of the total oil subsidy bill( of almost Rs 1 lakh crore) incurred in fiscal year 2013.

Impacts:

  • The cut in subsidy would further strengthen fiscal discipline.
  • The implementation of the direct transfer of cash benefits in the last few years has already helped in the better targeting of subsidies to the poor, thus substantially reducing wasteful spending.
  •  The fall in oil prices over the same period may have led the government to believe that his may be the right time to withdraw the cooking gas subsidy without causing much pain to consumers.
  • It is estimated that about 18 crore people, many of them below the poverty line, depend  on subsidized gas cylinder.

Conclusion:

The foremost aim of the government should be sustainably lower the price of cooking gas once and for all, getting the government out of the business of managing subsidies. In the long run, this is the only way to ease the burden on consumers and also free the budget from the pressure of international oil prices.

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