Policy Wise

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The state owned oil companied subsidize the domestic gas cylinders while commercial users have to pay the full market price. Since the price differential is substantial, there is large scale diversion of gas cylinders meant for domestic use to the commercial sector. The government has now decided to install RFID (Radio Frequency Identification Devices) in gas cylinders to check this ”pilferage”.

Because the Petroleum Ministry has asked oil marketing companies (OMCs) to push ahead with pilot projects to implant Radio Frequency Identification Devices (RFID) in domestic cylinders.In other words, the device, in the form of a chip in your cylinder, will monitor whether gas meant for your kitchen has been diverted for commercial use — hotels, restaurants or automobiles.[link]

While prima facie the scheme makes sense, a closer inspection reveals the flaws. As far my understanding of RFID goes, they would have to be ”read” by government inspectors. Each month millions of gas cylinders are sold across India. How many will the government monitor? This scheme will only end up encouraging inspector raj and corruption.

The ostensible reason for subsidizing gas cylinders is to help the poor. Subsidizes make sense only if they are a) well-directed b) substantial enough to actually make a difference to the targeted population. It’s debatable whether subsidizing gas cylinders passes this test. It treats everyone from the urban middle class to the rural poor as exactly the same! The Indian petroleum sector is in a mess precisely because of this system of cross subsidizations. To give just one example, subsidizing Kerosene, instead of helping the poor has only lead to unscrupulous dealers using it for adulteration of petrol and diesel. So important is this adulteration angle that despite the extremely low margin on sale of petroleum products, the business of petrol pumps remains lucrative.

Even worse, it betrays a mentality which one had hoped that the government had left far behind. Instead of implementing schemes like these and treating paying consumers as criminals, the government can achieve its purpose simply by abolishing the subsidy on gas cylinders. The government can invest the entire saving, 10000 crores in schemes which directly help the poor, for example rural roads.

Even if, for political reasons, government finds it impossible to abolish the subsidy on gas cylinders, a better way to address this issue would be to move away from gas cylinders and adopt piped gas. Not only will this allow the government to check ”pilferage” but also the consumers would be in a better position to control their consumption. I do understand that for logistical reasons, it may not be possible to supply piped gas everywhere, for example urban slums. However, if properly implemented, this is can itself work as an economic test to decide who deserves subsidizes and who doesn’t.

Adopting technology and utilizing it properly are two entirely different things. I hope the government realizes it soon enough.

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