A little over an hour after oil minister Veerappa Moily said that his ministry would take to the Union Cabinet "shortly" a proposal to increase the cap on subsidised LPG cylinders from six to nine per household, the Election Commission stepped in and directed the Centre to stall any such move.
Further, the poll panel served a notice on the oil ministry to this effect. Mr. Moily said he would be replying to the notice soon.
Gujarat votes for a new Assembly in two phases beginning this week and a model code of conduct in place right now forbids the government from making any announcements that could influence the decision of voters.
Mr Moily was speaking at an industry meet when he said this evening that there was no alternative but to increase the cap imposed by the government in September this year. The oil minister had also met the Prime Minister this afternoon.
The government had late last month indicated that it might roll back the limit on six subsidised cooking gas cylinders. The decision, announced by the Prime Minister in September as part of a clutch of reform measures designed to kickstart the economy, has proved politically contentious, with opposition parties slamming the government and even its own allies like the DMK and the NCP vocally unhappy. The reforms, seen as critical by investors and economists, forced the government into a minority with its main ally, Mamata Banerjee's Trinamool Congress, exiting the coalition in protest.
The Congress, which leads the UPA coalition has been worried too. The new LPG policy was used by the Opposition in the recent election in Himachal Pradesh and will be a point of attack as other states choose their governments over the next few months. In states where the Congress is in power, governments have been asked to increase the limit from six to nine subsidised cylinders per year, with the states paying for the difference.
The government, however, has to balance its politics with economics. Mr Moily met senior officials of state-owned oil marketing companies Indian Oil, Bharat Petroleum and Hindustan Petroleum in end-November to discuss the impact of raising the cap on subsidized cylinders from six to nine per family.
The ailing oil companies have reportedly made it clear that they will be unable to bear the burden of more subsidy and will need to be compensated in full for any increase in the number of subsidised cylinders.
Petroleum ministry sources say the onus is on the Finance Ministry to make good the additional loss. If the cap on subsidised cylinders increased by three, the additional burden on the oil firms will be Rs.3,000 crore for the remaining months of the current fiscal year ending March 31, 2013. From the next year, when the full subsidy comes into effect, the additional burden will increase to Rs. 9,000 crore.
Already, the Centre has to pay Rs. 30,000 crore to the state-owned fuel retailers forced to sell at cheaper government-set rates in the first half of the year. This payout is nearly 46 per cent less than the Rs. 55,400 crore the Oil Ministry had been seeking; it will be released after parliamentary approval is granted.
“I had asked for Rs. 60,000 crore as under-recovery for oil marketing countries in the first half of FY13,” Mr Moily said, adding that he has met the finance minister twice to discuss the issue.
With inputs from Reuters