Why the Modi Government Stopped LPG Subsidies and How It Affects the Poor and Middle Class

During the Modi government period, several economic and fiscal factors led to the decision of stopping the LPG subsidy to eligible poor and middle class customers. This decision has been a contentious topic, with various reports conflicting on the current status of subsidy. This article will explore the reasons behind the decision and its impact on the financially vulnerable sections of society.

Economic and Fiscal Factors Leading to the Decision

The decision to stop the LPG subsidy can be attributed to several economic and fiscal challenges faced by the government during the Modi era. The rapid increase in the country's debt levels, rising fiscal deficits, and the need to control public finances have played a significant role in this decision.

Rising Debt and Fiscal Deficit: A drastic rise in the country's debt levels has put immense pressure on the government's budget. With an estimated fiscal deficit for 2022-23 at 6.4% of the Gross Domestic Product (GDP) or Rs 16.61 lakh crore, it is evident that the government needs to control expenditures to manage its financial health. Increase in Interest Payments: The rising debt has led to increased interest payments, further straining the budget. This has meant cutting back on subsidies and other social welfare programs to make ends meet. Revenue Losses: The ongoing pandemic has resulted in a decline in revenue generation, making it even more challenging for the government to meet its financial obligations.

Introduction of PAHAL Scheme

In response to these financial challenges, the Modi government introduced the Pradhan Mantri Ujwal Discom Assurance Yojana (PAHAL) scheme, aimed at reducing loss subsidies for the fuel and power sectors. However, the primary focus of this scheme is on power distribution companies rather than providing direct cash benefits to LPG users.

Another significant development was the introduction of the Pradhan Mantri Ujjwala Yojana (PMUY), a programme aimed at providing LPG connections to women in the poorest families. This programme, while successful in connecting millions of households to LPG, has also led to adjustments in the existing subsidy framework.

Subsidy Scheme for Rich and Corporate Giants

It is worth noting that the same government that aimed to provide LPG connections to the poor and middle class also planned to eliminate subsidies for rich households and big corporates. This decision was made amidst reduced corporate taxes and governance reforms.

One specific example is the elimination of the subsidy scheme for Gift City and big corporates. This shift in priorities has been driven by the need to reallocate funds to close fiscal gaps and support struggling businesses and individuals.

Current Status of LPG Subsidy

While the Modi government initially aimed to eliminate the LPG subsidy, the current status leaves many questions. Recent reports suggest conflicting information regarding whether the subsidies have been restarted or if they remain suspended.

Market Forces and LPG Prices

A key factor in the decision to stop the LPG subsidy was the market dynamics. According to a report by ET EnergyWorld, the market price of LPG without subsidy had fallen to almost equal the previously subsidized price. This trend coincided with a drop in fuel prices due to reduced demand during the pandemic. In September 2020, the price of LPG was significantly lower, making the subsidy less necessary.

However, since then fuel prices have rebounded due to increased demand. Despite the rising fuel prices, the government has not yet restarted the subsidy, leading to an increase in the price of LPG cylinders for consumers.

Impact on the Poor and Middle Class

For poor and middle-class households, the absence of LPG subsidies has had a significant impact. Many households are struggling to replenish their LPG cylinders, and recent price hikes have further compounded their difficulties. A article highlighted that with record price hikes, many individuals have had to give up on their LPG usage.

In response to this situation, the government has implemented a couple of measures. Firstly, an augmentation of prices by 10% was introduced to make the subsidy more efficient. Secondly, the introduction of the Pradhan Mantri Ujwal DISCOM Assurance Yojana (PAHAL) scheme provides direct financial assistance to DISCOMs to reduce power loss subsidies, indirectly benefiting consumers by stabilizing energy prices.

Moreover, those who have not linked their LPG ID to their bank accounts are still not receiving the subsidies. This highlights the critical importance of digital integration and user engagement in implementing such social welfare programs effectively.

Conclusion

The decision to stop the LPG subsidy during the Modi government period is a complex issue rooted in economic and fiscal realities. While the initial intention was to control public finances and manage fiscal deficits, the current status remains ambiguous. The poor and middle class continue to face financial challenges, and the situation underscores the need for a more balanced and inclusive approach to social welfare programs.