Aadhar's LPG subsidy pilot

    Followup to the previous post.. A new pilot program is being tested by Aadhar and the state oil companies in providing subsidies to LPG cylinders. This is how the program works:

Under the direct transfer system, the gas agencies will obtain UID numbers or Aadhaar of the consumers (of the entire family members and an authorised person) and their bank account numbers. The bank account will be made Aadhaar-enabled.

At the time of delivery of the refill cylinder at the consumer’s door steps, biometric details of any one of family members or the authorized person are verified using hand-held “point of sale device”. Only if the bio-metric details of the person are matched with the consumer data already stored in the device, a bill gets generated and the refill cylinder is delivered. Consumers will be charged the market rate for the refill – which is presently around Rs 800 per cylinder.

The successful operation of matching the biometric details and generating bill, triggers an automatic process of transfer of subsidy amount (approximately Rs 400 per refill) from the bank account of the oil company to the bank account of the consumer, officials said.

    The apparent intent of this pilot is to reduce leakages in administration of these subsides. It may take time to know if the program is successful. However, if it does yield positive results there could also be an interesting side benefit. At the moment, government agencies and oil companies struggle to explain the rationale for increasing petrol , Diesel and LPG cylinders prices when the costs of oil commodities increase.

    By making consumers pay the market price upfront and then claim the subsidy, actual market price of the LPG cylinder is made clear to the user. Taking it a step further, the upfront price should be varied in tune with the prices of crude oil and natural gas. For example, if the market price declines to Rs.750 for a cylinder, charge the customer Rs.750 upfront and when prices go up to Rs.850 charge the customer Rs.850. The values of subsidies in each case can be adjusted to make it palatable to both sides.
   
    At the moment you see oil companies launching media campaigns to explain why they are forced to raise prices. Instead a transparent payment system like this could be an effective way to illustrate to consumers the overall cost of subsidies. And hopefully, help make a better case to reduce some of them. With a bit of political will, the same mechanism could be introduced for fertilizer prices too.