Hope versus hype

The Pradhan Mantri Ujjwala Yojana (PMUY) has made a splash over the last two years. No citizen can drive into over 56,000 PSU petrol pumps without seeing a large hoarding of the Prime Minister alongside an LPG cylinder and a woman’s photograph. This is saturation advertising.

The PMUY has its genesis in research into the disease burden on women and children who rely on biomass and firewood for cooking, especially in rural areas. This burden is estimated to be equivalent to being in a room where 300 cigarettes per hour are being smoked. The resultant burden of chest and lung disease is as significant as the burden due to polluted water. Provision of clean fuel is therefore, a highly laudable initiative.

The government of India (GOI) has set a target of releasing 50 million LPG connections to BPL women during 2016-19. The scheme entails a subsidy of Rs 1,600 per connection from GOI and interest free loan of Rs 1,600 per connection by oil marketing companies (OMCs). The loan is recoverable from the LPG subsidy on purchase of subsequent refills (14 kg) at a rate of about Rs 160 per cylinder. A beneficiary consuming four cylinders per year should therefore be able to repay the loan in two-three years.

The going has been great so far, but issues of sustainability and viability loom on the horizon. A Ministry of Petroleum sponsored study of 2016 in-dicates that about 37 per cent households without LPG connections in rural areas have free access to a mix of firewood, biomass and cowdung. The main barrier to LPG penetration, affordability, comes into play with great force for these 37 per cent households. LPG penetration at all India level was 79.2 per cent in January 2018 (figures not available separately for rural and urban areas), well beyond the affordability threshold of 63 per cent for rural areas. Any push beyond this affordability barrier is simply unaffordable, unless the LPG subsidy is increased.

About 65-70 per cent of PMUY beneficiaries are reported to have availed of loans from OMCs, and about 25-30 per cent beneficiaries have reportedly not made any repeat purchase of cylinders. Granular data regarding quantum of repeat purchase by beneficiaries is not in the public domain. OMCs have recently deferred recovery of loans for one year. These straws in the wind suggest hiccups in the PMUY credit cycle, which will aggravate with the recent  scaling up of the target from 50 to 80 million beneficiaries by 2020. The credit extended by OMCs is likely to exceed Rs 80 billion by 2020, with uncertain prospects for recovery. OMC balance sheets will take a hit unless the credit risk is borne by GOI. Even otherwise, the recovery model leaves much to be desired, since the poorest consumers have to pay the full cost of the cylinder (the subsidy component being pre-empted towards loan recovery), while richer consumers enjoy the benefit of LPG subsidy being deposited in their bank accounts under direct benefit transfer.

The growth of LPG consumption in the country has not accelerated after launch of PMUY in 2016. The total number of domestic LPG consumers grew at 10.9 per cent in 2015-16, 16.3 per cent in 2016-17 and 13.2 per cent in 2017-18 (till January 2018). LPG consumption grew at 9 per cent in 2015-16, 10.1 per cent in 2016-17 and 8 per cent in 2017-18 (till January 2018). Sanction of LPG connections by itself is clearly not a panacea for increasing use.

In the India Energy Outlook, 2015, International Energy Agency has projected that the transition to alternative clean fuels is likely to be spread beyond 2040, and will require a more multipronged approach, including a focus on efficient biomass cooking stoves.

Forcing the pace through indiscriminate sanction of free LPG connections with increasingly ambitious targets will simply not work. It would be appropriate for GOI undertake an in depth evaluation before scaling up the target to 80 million. However, politics appears to have trumped economics as the country heads into a general election, compromising financial viability and sustainability of PMUY.
The author is a former Union petroleum secretary

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