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Commentary

From 2015, You’ll Pay Market Prices For LPG Cylinders, and Get Subsidy Into Your Bank Account (No-Aadhaar-Version)

The government will continue the direct subsidy transfer for LPG, but this time it won’t need an Aadhaar card. From 54 districts in mid-November 2014, and for all of India from 1 Jan 2015, we will see the subsidy for LPG being credited directly into bank accounts. The earlier scheme – which was based only on the Aadhaar numbers – has been tweaked to remove the requirement of Aadhaar.

According to a press release:

  • The subsidy per domestic subsidized cylinder shall be fixed.
  • All LPG consumers who join the modified DBTL scheme in future can receive LPG cash subsidy:
    – By linking Aadhaar number to the LPG and bank database as the primary option.

OR

– Directly into the bank account without necessarily linking it with the use of Aadhaar as the secondary option.

This will ensure that no consumer is denied LPG subsidy for want of Aadhaar number.

  • All LPG consumers who had already joined the scheme solely based on Aadhaar number will start getting subsidy in their Aadhaar linked bank accounts after scheme is launched.
  • LPG consumers will get a Grace Period of 3 months during which consumers who have joined the scheme will get subsidy in bank account and others will continue to get cylinders at subsidized price.
  • LPG consumers who do not join the scheme after the 3 month grace period, will be eligible for an additional subsidyParking Period of 3 months.  During this period, LPG cylinders to all such consumers will be supplied at market price, but the subsidy due on all LPG supplies will be credited to the bank account as soon as consumer joins the scheme in this period and as per entitlement.
  • LPG consumers who will now join the modified scheme in future will get a permanent advance towards the purchase of the first market priced cylinder equal to the fixed subsidy per cylinder.
  • A revamped grievance system to attend to consumer grievances will be put in place.
  • Effectively, everyone gets a subsidy till 31 March 2015 (except in the trial 54 districts, where the subsidy stops in mid Feb 2015). The subsidy isn’t paid out; it is by virtue of a lower per-cylinder price (as per current norms). You will get this time to register your bank account or Aadhaar card with your gas distributor.

    After that date, all LPG cylinders will be sold at market prices (more than Rs. 1000 currently, I think). If you’ve joined the scheme by now, the subsidy money (around Rs. 500 per cylinder) will be transferred into your account a few days after you pay for the cylinder.

    If you haven’t joined, you get another three months (till June end 2015), by which time if you do register, you get all the subsidy for the previous three months.

    If you still don’t register, you forfeit the subsidy until you eventually find the time to register.

    Oh, and to prompt you to register – every single person will get an advance (which is around Rs. 500 or so) to help them pay for the first cyclinder. This should make the new scheme attractive.

    Our View: Good Stuff

    Direct transfers are always good. Every single consumer’s data is on the internet already – that is, whoever has claimed a subsidy. Abuse of the scheme can be cross checked and scammers found and trapped, because when you directly transfer into a bank account, it’s darn difficult to hide. (As against reporting of larger sales of subsidized LPG cyclinders while selling them in the black market, as is currently the case).

    Is the subsidy “income”? Will such income be taxed? We don’t know yet but the amount will be small, for those reporting taxes anyhow. Even if you used a cylinder a month and got subsidy for 12 cylinders, the subsidy won’t add up to more than Rs. 7,000, which isn’t that much for those in the higher tax brackets. However, the tax department will have to clarify.

    This should also help oil companies sell at market rates, and be competitive about such rates. The concept of a direct subsidy means that even private distributors may be able to sell cylinders (eventually) to customers who can get the subsidy separately.

    Not having an Aadhaar card as a requirement is good, and also that if you do have it, you can use it. This allows Aadhaar to continue as well.

    The original scheme using Aadhaar wasn’t a bad one – but then it needed an Aadhaar card. Now you still get the direct benefit – which is way better because people will directly see the money and it won’t vanish into the ether. We hope there is enough fraud detection to ensure that people don’t randomly create bank accounts and addresses to keep getting such subsidies.