CAG has punctured government's LPG savings bubble – by saying 92% of it was thanks to cheap oil

The Bharatiya Janata Party government prides itself on plugging leakages in the distribution of subsidised Liquefied Petroleum Gas – through direct benefit transfers and its Give It Up scheme – and has claimed that their initiatives have saved the country about Rs 23,000 crore. However, a report by the Comptroller and Auditor General of India, tabled in Parliament last week, has put the government in the dock for misrepresenting facts and has said that much of the savings –about 92% – are on account of falling oil prices. Only about Rs 1,764 crore of the savings were because of the government initiatives, the report said.

The government had launched the Aadhar-linked direct benefit transfer scheme to send the subsidy amount directly to the accounts of beneficiaries, thereby doing away with middlemen and weeding out duplicate connections. Under this, households buy LPG at market rates, but the subsidy amount is deposited in their accounts later. The Give It Up plan, meanwhile, encourages those who can afford it to relinquish their subsidy on cooking gas.

The government has frequently claimed that a combination of these two has significantly reduced its subsidy burden – the actual amount, however, that has always been in dispute, even before the CAG came out with its audit.

Drumming it up

For instance, In May, during the government’s two-year anniversary celebrations, Prime Minister Narendra Modi had announced that Rs 15,000 crore had been saved by plugging subsidy leakages. The actual number, however, was much lower, according to analysts and researchers.

In April, Chief Economic Advisor Arvind Subramanian wrote a column in the Indian Express clarifying that the government estimates of savings were “potential” not actual. Even then, he said, that the savings would amount to Rs 12,700 crore a year – Rs 2,300 crore less than what the PM claimed.

The CAG report reiterated that the government’s claims were misleading. While accepting that the actual LPG savings were Rs 23,316 crore last year as compared to the previous year, as the government had claimed, the auditor said that much of this was thanks to the fall in oil prices in global markets.

“The fall in subsidy payout in 2015-16 as compared to 2014-15 was a combined effect of decrease in off take of domestic cylinders, on which subsidy was paid, and the lower subsidy rates from a sharp fall in crude oil prices,” the CAG said in its report.

It added that the effect of direct transfers and people voluntarily giving up subsidies was not as much as the government had been claiming.

“While the reduced off take of subsidised LPG, which could be considered to be an outcome of implementation of the PAHAL [direct benefit transfer] scheme, has contributed to savings in subsidy, its effect was not as significant,” the report said.

According to the CAG calculations, about 93% of actual savings happened due to cheaper oil prices, while direct transfers helped save the rest 7% of the Rs 23,316 crore figure.

Despite several rebuttals, however, the Ministry of Petroleum and oil marketing companies have stuck to their estimates.

For instance, a report in The Hindu last month – about the CAG report that was tabled on August 12 – said that against a claim of Rs 22,000 crore the government had saved only about Rs 2,000 crore through its schemes. In response to this, the ministry clarified that it had indeed saved more than Rs 20,000 crores by weeding out about 3.34 crore duplicate/fake/inactive connections in 2014-2015 and 3.56 crore connections in 2015-2016.

“Before DBTL [direct benefit transfer of LPG], all or many of these 3.34 crore consumers would have continued to purchase subsidised cylinders from the distributors,” the government said in a press release. “But for the blocking of these accounts, the subsidy bill would have been much higher despite fall in crude oil prices.”

The CAG report, however, refuted this. It said that this number was based on the assumption that inactive customers had availed of their full quota of 12 subsidised cylinders – the average per-capita consumption is only 6.27 cylinders a year, the auditor said.

Therefore, though the government had claimed to have saved Rs 9,211 crore in 2015-16, the actual savings were Rs 4,813 crore only.

Faulty calculations

The CAG report noted that though the direct benefit transfer scheme may have curbed the diversion of subsidised LPG for commercial purposes, it did not address the diversion of non-subsidised LPG to commercial customers. The price difference between non-subsidised LPG for commercial and household purposes is significant (at least Rs 233 per cylinder).

To highlight this, it cited the increase in the purchase of non-subsidised LPG cylinders. Interestingly, the government claimed last month that the phenomenal growth in use of non-subsidised LPG cylinders was proof that its schemes were working.

“It should be noted that concrete evidence of successful elimination of bogus connections is seen in the phenomenal growth of non-subsidised commercial LPG sales which have registered an increase of 39.3% in the period April 2015 to March 2016,” the government’s press release stated.

CAG, however, said this “phenomenal growth” was a reason for concern. There had been a 260% increase in the number of people who consumed more than 24 domestic cylinders in the first seven months of the year, it said.

If non-subsidised cylinders are being diverted for commercial use, this would mean a further loss to the government exchequer, the CAG report said.

Duplication still rampant

Economists, too, feel that the government has been making its estimations based on variables, thereby risking gross overestimation of savings or benefits.

Reetika Khera, who teaches at the Indian Institute of Technology in Delhi, said that the earlier government estimates assume that the reduction in subsidised LPG connections was all thanks to removal duplicates, but it doesn’t know how many genuine beneficiaries have been knocked out of the subsidy net owing to the Aadhar-linked direct benefit transfer scheme.

“The government of India, instead of trying to get actual estimates of the number of duplicate connections removed and legitimate beneficiaries removed from the list, projected all savings as having been derived from removing duplicates from the system,” Khera said. “According to work by International Institute of Sustainable Development, de-duplication was achieved primarily through list-based de-duplication, rather than biometric/aadhaar number-based de-duplication.”

The CAG report, in fact, said that duplicate connections had not entirely been removed. In its audit, it found that Oil Marketing Companies continued to have multiple connections for the same Aadhar number, for instance.

It noted that about half the duplicate connections continue to be “active” while another 20% are in the status of “in-transit”, meaning they could still be claiming subsidies.

“Audit noticed instances of multiple connections existing both within and between OMC," the CAG noted. "Besides, connections blocked on suspicion of being multiple connections were often un-blocked without maintaining adequate documentation of justification for such un-blocking."

It concluded: "Scrutiny of the selected sample indicated that there were inadequate input checks for the domestic LPG consumer database, which adversely affected its accuracy and integrity."