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PaHaL – Direct Benefit Transfer Scheme for LPG

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PaHaL (Pratyaksha Hastaantarit Laabh) is the abbreviated alternate Hindi name for the Direct Benefit Transfer (DBT) Scheme existing in India for the direct cash transfer of subsidy for Liquefied Petroleum Gas (LPG) used in household cooking.  As the name suggests, LPG consumers who join the PaHaL scheme will get their LPG cylinders at market price and receive LPG subsidy, as per their entitlement, directly into their bank accounts.

Prior to the introduction of direct benefit transfer or direct cash transfer, LPG was sold at subsidised prices to all households through public sector oil marketing companies (private sector refiners were not allowed to distribute the subsidised LPG), leading to black marketing and diversion of subsidised/low priced cylinders for industrial or auto/transport uses. Cash transfer is an alternate form of giving subsidy wherein the amount contributed by the Government to suppress the price of the product is given directly to the consumer, leaving the price of the product to be determined by market forces.  Thus, contrary to general perception, DBT is not elimination or substitution of subsidy, but an alternate way of giving subsidy.

DBT is designed to ensure that the benefit meant for the genuine domestic customers reaches them directly and is not diverted. By this process public money is saved, just as fake and duplicate connections cease to exist. Under DBT, subsidy is available only to those who opt for it, thus ensuring self-selection and avoiding universal coverage. Capping the price of LPG for household consumption had also led to production distortions and stress on distribution infrastructure.  DBT intends to correct such distortions in the industry.

The PaHal scheme has been acknowledged by the Guinness Book of World Records for being the largest cash transfer program (households) with 12.57 crore households receiving cash transfer as of 30 June, 2015[1].

As on 5 December 2015, around 14.62 crore LPG consumers have joined the PAHAL scheme and are receiving the subsidy directly into their bank accounts[2]. The number is set to grow, as more and more consumers register for LPG subsidy, given the fact that LPG penetration is still low in India.
Similar programs exist in other countries, such as China, Mexico and Brazil. 


The DBT Scheme for LPG was launched initially on 1 June 2013 by linking the LPG subsidy solely to Aadhaar – the biometric based unique identity number provided to the Indian citizens – and covered a total of 9.55 crore LPG consumers (out of the approximate 15 crore LPG consumers), in 291 districts of the country (which had relatively better distribution of Aadhaar), as at the end of December 2013 - i.e., over half of the LPG consumers in the country[3]. All Aadhaar linked domestic LPG consumers were to get before delivery, an advance in their bank account (around Rs 568/-) as soon as they book for the first subsidized cylinder. As soon as the first subsidized cylinder is delivered to such consumers, the next subsidy will again get credited in their bank account, which can then be available for the purchase of the next subsidized cylinder at market rate, and this goes on till the specified cap with respect to number of subsidised cylinder is reached. All LPG consumers who had not linked their Aadhaar number to LPG consumer number and their bank account were given three months grace period from the date of launch to do so. After the end of the grace period i.e., w.e.f. 1 September 2013, LPG cylinders were to be sold to all domestic LPG consumers at market price. However, the subsidy were to be transferred to only those who had linked Aadhaar  number to LPG consumer number and Bank account and others were not to get any subsidy.

With the new Government coming to power in May 2014, based on the difficulties faced by the citizens, the DBT was re-launched as `PaHaL’ Scheme in 54 districts of the country on 15 November 2014 and launched the same in the remaining 622 districts of the country on 1 January, 2015.  Thus, the PaHaL Scheme is presently applicable in all 676 districts of the nation.

Under PaHaL, all domestic LPG consumers were given two alternatives. If LPG consumer has Aadhaar number, he/ she will have to link it to his/ her LPG consumer number and bank account. Alternatively, he/ she can link his bank account directly to his LPG consumer ID[4].

All LPG consumers, who had not joined the PaHaL/DBT scheme, got another grace period of three months from the date of launch to join the scheme. During the grace period such consumers were entitled to get LPG at subsidized price. Additionally, a period of three months beyond grace period, known as parking period, was given to LPG consumers for joining the scheme. During parking period such consumers were to get cylinders as per their entitlement at market price and subsidy was kept parked with Oil Marketing Companies (OMCs). This parked subsidy would be released as soon as consumer joins the scheme. However, if a consumer joins the scheme after parking period, the parked subsidy would lapse and consumer would get subsidy from prospective date only. 

From 1 July 2015 onwards, consumers who still have not joined the scheme will get the cylinder at market price only and subsidy will not be admissible. Subsidy will be transferred only to the bank account of those consumers who have joined the scheme prior to 30 June 2015. Any consumer joining the scheme after 30 June 2015 will get permanent advance and subsidy with prospective effect.


Evolution of DBT in LPG subsidy provision
To arrive at a viable and sustainable system of pricing of petroleum products, Government had set up an Expert Group under the chairmanship of Dr. Kirit Parikh which submitted its report in February 2010. In the light of Government’s budgetary constraints and the growing imperative for fiscal consolidation, and the need for allocating more funds to social sector schemes for the common man, the Government decided that the pricing of petrol and diesel, both at the refinery gate and the retail level will be market-determined. As a first step, petrol prices were deregulated on 25 June 2010 while slowly increasing the prices of other subsidised products like diesel, LPG and Kerosene.

Government started diesel pricing reforms in January 2013, by permitting Oil Marketing Companies (OMCs) to undertake monthly increase of about 40- 50 paise/litre in diesel price, till it gets equated with the market price, as part of reducing subsidy on the same.

In case of LPG, while raising the price of non-subsidised LPG, effective 14 September 2012, subsidy reforms were implemented with a cap of 6 cylinders per household per financial year. This cap was revised to 9 from 17 January 2013 and again revised to 11 from 1 February 2014 for the financial year (FY)2013-14 and to 12 for FY 2014-15. However, more than 99% of LPG consumers use less than 12 cylinders per year and thus, will remain unaffected by the reform measure, thereby reducing its impact[5].

Another path breaking reform in allocation and distribution of LPG was Direct Benefit Transfer (DBT) Scheme for LPG distribution based on the unique ID - Aadhar - of citizens.  Launched on 1st June 2013, DBT Scheme for LPG covered a total of 9.55 crore LPG consumers (out of the approximate 15 crore LPG consumers), in 291 districts of the country, as at the end of December 2013 - i.e., over half of the LPG consumers in the country. Around Rs. 5400 crore got directly credited into the Aadhaar linked Bank accounts of 2.8 crore LPG consumers till 8 March 2014[6]. It is pertinent to mention that the subsidy burden due to domestic LPG was about Rs. 40,000 crore in the previous year i.e., 2012-13. It was also alleged that many could not join the scheme as it took time for them to get their Aadhar Cards. Further, based on various privacy pleas in this regard, Supreme Court ordered that Aadhaar should not be made mandatory for availing government schemes/benefits. This led to the launch of PaHaL Scheme.

Oil Marketing Companies had also conducted a de-duplication drive prior to the launch of DBT.  Aadhaar based de-duplication exercise has made possible the detection of such multiple connections which may have remained undetected otherwise. This resulted in blocking over 80 lakh LPG connections, which has led to a saving in LPG subsidy of around Rs. 4000 Crore per annum as on January 2014[7].   A statistical analysis carried out by MoPNG using data on consumption of domestic LPG sales from Jan 2012 to December 2013 provided evidence of around 18% reduction in sales of domestic LPG cylinders, which could be attributed to reduction in diversion and LPG conservation efforts, caused by the launch of DBT Scheme and introduction of capping. With an LPG subsidy burden of Rs. 46458 Crore during 13-14, DBT Scheme along with capping was estimated to lead to about Rs .6500 Crore of annual savings in subsidy[8].

Thus, Aadhaar based DBT scheme was proved to be an efficient mechanism to prevent fake/ghost connections and consequent diversion of subsidized LPG cylinders.  This system also permits any citizen not willing to avail subsidy to remain out of its ambit, thereby allowing for self-selection to some extent. For instance, in the first two phases (out of the 6 phases) around 78 lakh cylinders were sold (during period Sept. 2013 to Feb 2014) to consumers who did not join the scheme, thereby saving subsidy of more than Rs. 400 crore.

 In an another similar initiative, Direct Transfer of Cash Subsidy on Kerosene (DTCK) Scheme was launched to help curb diversion of Kerosene from public distribution system (PDS) and save public money from going into wrong   hands. Following the announcement of one time grant of Rs 100 crore to each State joining the DTCK Scheme, three States- Rajasthan, Maharashtra & Goa- came forward during the year 2013.  They indicated 7 districts for implementation of the scheme in 2013-14.  In the pilot project for DTCK in the Kotkasim Block of Alwar District (Rajasthan) in December 2011, only 40% of earlier allocation was found to be the actual demand[9].The National Sample Survey 2011-12 indicates that the total consumption of kerosene in the country, including both open market and PDS kerosene, was 71.30 lakh kilolitres. Even though consumption of kerosene has been coming down over the years, 86.85 lakh kilolitres of subsidized PDS kerosene has been allocated to the States in the year 2015-16, which is higher than the total household kerosene demand in the country. Thus, there is evidence that some part of the kerosene allocation is diverted for non-eligible purposes.Subsidy outgo for kerosene for the financial year 2014-15 was about Rs. 24,799 crore. Several State Governments have come forward to implement DBT in kerosene in selected districts. With a view to incentivize States/UTs to implement DBT in kerosene, it has been decided that the States be given cash incentive of 75% of subsidy savings during the first two years, 50% in the third year and 25% in the fourth year. In case, the States voluntarily agree to undertake cuts in kerosene allocation, beyond the savings due to DBT, a similar incentive will be given to those States/UTs. The calculation will be based on net savings in kerosene consumption at State level from the baseline. The baseline for calculation of savings shall be 90% of the 2015-16 allocation. Government has decided to implement this new Direct Benefit Transfer in Kerosene (DBTK) in 33 districts identified by 9 State Governments.This scheme is implemented with effect from April 1, 2016.[10]


Estimated Savings from DBT in LPG
DBT scheme has enabled substantive savings in subsidy on supply of LPG to the households. As on 1 April, 2015, there were 18.19 crore registered LPG Consumers and 14.85 crore active consumers implying a gap of 3.34 crore consumers which are duplicate / fake / inactive accounts blocked under PAHAL Scheme and related initiatives.  If we take into account the quota of 12 cylinders per consumer and the average LPG subsidy of Rs.366 per cylinder for the year 2014-15, estimated savings in LPG subsidy due to the blocking of 3.34 crore accounts work out to Rs.14,672 crore, during that year.    Further, as on 5 December 2015, out of a total of 16.27 crore active consumers, 14.62 crore consumers are availing subsidy – resulting in further subsidy saving for 1.65 crore consumers[11] who have opted out of the scheme.

1. Source: Ministry of Petroleum and Natural Gas (MoPNG) Press Release dated 5 December 2015
2. Source: Ministry of Petroleum and Natural Gas (MoPNG) Press Release dated 5 December 2015
3. Source: Review of the Direct Benefit Transfer for LPG Scheme, Committee Report May 2014, MoPNG, New Delhi
4. Source: MoPNG press Release dated 31 December 2014
5. Source: MoPNG Press release 3 July 2014
6. Source: Review of the Direct Benefit Transfer for LPG Scheme, Committee Report May 2014, MoPNG, New Delhi
7. Source: MoPNG press release dated 24 January 2014
8. Source: Review of the Direct Benefit Transfer for LPG Scheme, Committee Report May 2014, MoPNG, New Delhi
9. Source: MoPNG press release dated 24 January 2014
10.Source: MoPNG press release dated 1 January 2016
11. Source: MoPNG Press Release dated 5 December 2015


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