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LPG subsidy savings largely due to falling oil prices: CAG (Relevant for GS Mains Paper II, Topic: LPG subsidy)

CAG findings
About 92 per cent of the Rs. 23,300-crore savings in subsidy payouts by the Petroleum Ministry in 2015-16 was due to the sharp fall in oil prices, the Comptroller and Auditor-General of India has found, picking holes in the government’s claims on where these savings actually came from.

 “The subsidy burden over the period from April 2015 to December 2015 was lower than that for the comparable period in 2014 by Rs. 23,316.21 crore,” the CAG report, tabled in Parliament on Friday, said. “However, this was a combined effect of decrease in off-take of subsidised cylinders by consumers (Rs. 1,763.93 crore) and lower subsidy rates arising from the sharp fall in crude prices (Rs. 21,552.28 crore) in 2015-16,” it said.

“While implementation of PAHAL (DBTL) Scheme coupled with the ‘Give it Up’ campaign has resulted in the reduction of offtake of domestic subsidised LPG cylinders, the resultant subsidy savings was not as significant as that was generated through fall of subsidy rates,” the report added.

Claim by Government
This comes against the backdrop of the Centre’s claims that it has saved about Rs. 22,000 crore due to the ‘Give it Up’ campaign, coupled with the direct bank transfers of the subsidies.

The CAG’s figure of a saving of Rs. 1,764 crore due to a lower offtake of LPG cylinders was based on actual numbers while the government’s calculations were estimates.
The Petroleum Ministry’s clarification said that, due to the PAHAL direct benefits transfer scheme, it had weeded out 3.34 crore duplicate/fake/ghost/inactive domestic LPG connections as of April 1, 2015.

This figure was 3.56 crore in 2015-16. Using these figures, the government estimated a savings of Rs. 21,261.4 crore over the two years.
“Before DBTL, all or many of these 3.34 crore consumers would have continued to purchase subsidised cylinders from the distributors,” the government clarification had said at the time. “But for the blocking of these accounts, the subsidy bill would have been much higher despite the fall in crude oil prices.”

However, the CAG report finds that the government’s calculations were still problematic as they made erroneous assumptions.The Ministry had estimated the potential savings for 2015-16 from the PAHAL scheme to be Rs. 9,211 crore. This, the CAG report found, was on the assumption that all of the consumers would have availed the Rs 169.45 per cylinder subsidy for the entire quota of 12 cylinders a year.
“The national average per capita consumption of domestic LPG cylinders in 2014-15 was 6.27 cylinders,” the report said. “As such, the underlying assumption made while working out the subsidy savings that blocked/inactive consumers would have availed the maximum quota of 12 cylinders on which subsidy is payable appears to be an overstatement.”

The report adds that, when calculated using the national average LPG cylinder usage, the government’s estimate would be revised downwards to Rs. 4,813 crore, a little more than half the original estimate.
Similarly, the CAG report found that the oil marketing companies, in their own calculations of the estimated savings for 2015-16, had in fact correctly used the national average consumption figure but had used the 2014-15 subsidy amount of Rs. 338 per cylinder.

If the average subsidy of Rs. 169.45 per cylinder (the correct figure for 2015-16) had been used, as the Ministry had done, then the estimated subsidy savings would have been Rs. 2,359.28 crore instead of the Rs. 5,107.48 crore as stated by the oil marketing companies.

The CAG report also found that the government still has a long way to go in fully eradicating duplicate/fake/ghost accounts. The report found several instances of intra-OMC duplication (where a single Aadhaar number or bank account number was used for multiple LPG connections), and many instances of consumers receiving more than mandated 12 subsidised cylinders a year.



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