“Price of LPG may be linked to consumption,” said a recent Times of India headline, reporting on the Oil Ministry’s continuing quest for ways to address ballooning oil import and fuel subsidy bills. It said that India’s crude bill went up to $100 billion in 2010-11 and the subsidy bill on kitchen and motor fuels is expected to exceed Rs 133,000 crores in 2011-12. The rupee’s fall against the dollar has only made matters worse. The latest idea of linking cost to consumption (like electricity bills) comes after another proposal a few weeks back to limit the number of subsidized LPG cylinders per family met stiff resistance from consumers. It is in this larger context that the benefits of using Aadhaar to better manage LPG supply should be viewed.

On a personal note, when we came to Bangalore last year, we were given two options to get our LPG connection: 1. Take the long route to a 'gas-only' APL ration card, which would have entitled us to Rs 399/14.2 kg cylinder (Rs 28/kg). The process, however, would take us months and would involve bribes; or 2. Get a commercial connection, available on the same day, which would cost us Rs 1300/19.4 kg cylinder (Rs 68/kg). We chose the latter out of sheer necessity, even though it is 2.4 times the rate that most of our relatives pay.

We were planning to go through the APL card route later just for the experience, but we changed our minds when we saw the national stats on LPG subsidies: The government subsidy on each cylinder is Rs 267 (i.e. 40%), costing the government a whopping Rs 27,000 cr in FY12! That means, we are paying 45% more than even the unsubsidized cost.

Now, let me tell you about the Karnataka story: It has 75.55 lakh gas connections, but 40% of them are not 'genuine' (Deccan Herald, Jul 2011). When Shobha Kharandlaje became the minister in charge of civil supplies, she admitted to NDTV (Feb 2011) that the state has 1.2 cr households, but 1.6 cr ration cards; and that there are 40-50 lakh fake ration cards. Worse: (a) 6 lakh real BPL families do not have ration cards, and presumably no LPG or kerosene, while (b) 60 lakh APL families have BPL cards, and hence get subsidies meant for the former!

In the Planning Commission’s lingo, '(a)' above is ‘wrongful exclusion’ and '(b)' is ‘wrongful inclusion,’ and it looks upon the two as closely interlinked and hence to be tackled in parallel. Some activists, however, e.g. John Dreze and Aruna Roy, tend to vastly downplay the ‘wrongful inclusion’ part, despite damning stats to the contrary. Admittedly, the situation in other states may not be as dire as in Karnataka, but the story of the murder last year of an Asst. Collector in Maharashtra who was investigating the Kerosene mafia would indicate that the mafia-politician nexus in kitchen fuel is indeed an endemic problem.

In a bid to tackle the issue head on, the Oil Ministry is piloting ‘subsidy-in-cash’ pilots in some parts of the country, using Aadhaar. The hope is that the black market -- which now gets subsidized cylinders at say Rs 399 and sells them in the open market for a much higher price -- can be curtailed by setting one market price for all LPG cylinders (say, Rs 667 -- the price figures I am using may have changed and are only for illustration). Those eligible to subsidies would then presumably get a refund of Rs 267 transferred directly to their Aadhaar-linked bank accounts.

Back to Karnataka, in a bold attempt to come to grips with the 30 lakh unaccounted for LPG connections, the new minister announced that all LPG users must present documents showing their electricity meter numbers (presumably a unique number) so that they could load it into the database to look for fakes and duplicates. She held out the threat that if you did not prove your bonafides by a certain time, your LPG connection would be suspended. However, despite numerous extensions to the deadlines, only about 50% of the people came forward with supporting documents, indirectly confirming the estimate of fakes. Unfortunately, the state messed up the IT side of the project (not entering some of the data correctly) creating a back-lash from genuine consumers. On the other side, a lot of pressure seems to have been exerted from vested interests within the government, unfortunately aided by NGOs who questioned the choice of electricity meter numbers, which many poor do not have – unlikely bed-fellows, if you ask me! The result:  The government has indefinitely postponed a badly needed project to tackle a huge source of corruption.

The government’s hope, as spelled out from day one, has been to utilize the unique Aadhaar number nation-wide to tackle the dual issues of wrongful exclusion and wrongful inclusion. Had Aadhaar and the national gas companies been behind the Karnataka effort, the outcome of the ‘de-duplication’ efforts would have been different, in my view. Perhaps, the exercise will resume as soon as enough Aadhaars have been issued in the state.

Given the enormous financial implications of fakes and duplicates, it appears that the government is not in a position to take the stand that they won’t bother current customers and will only tackle the ‘exclusion’ problem. This is what probably resulted in the Ministry of Petroleum and Natural Gas issuing an order in Oct 2011, mandating Aadhaar for LPG for everyone -- under the Essential Commodities Act 1955 -- within three months of notifying Aadhaar enrollment in their area.

It seems to me that even if 10% of the LPG subsidy can be reduced using Aadhaar to rein in illegal trade in LPG, the country can save as much as Rs 2,700 crores a year!