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A Rejoinder on LPG Subsidies

Rahul Lahoti, J Y Suchitra, Prodyumna Goutam

n our article Subsidies for Whom? The Case of LPG in India (EPW, 3 November 2012), we demonstrated convincingly that the distribution of liqueed petroleum gas (LPG) uptake in India is heavily skewed in favour of the urban afuent and argued that the state policy of capping the subsidies to six cylinders per household per year was thus in the right direction. On account of their negligible current usage of LPG, poor households will be largely unaffected by the subsidy cap. Our main recommendations were towards ensuring that poorer households and those in rural areas are increasingly encouraged to switch from the hazardous and polluting solid fuels to cleaner fuels like LPG, and cleaner technologies such as improved cooking stoves. IHDS Data

our analysis except that it would omit variables such as womens status and household social networks in the regression estimations. Quite expectedly, we nd results that are remarkably similar to those based on IHDS data primarily because the broad socio-economic context for household analyses is unlikely to undergo changes so drastic in a time period of ve years that would affect inequalities in LPG uptake. Urban Bias The urban bias remains with 65% of urban households compared to only 12% of rural households having access to LPG;1 and the quintile analysis shows a secular increase in per capita LPG expenditure across the monthly per capita expenditure (MPCE) quintiles in both areas. Regression results for the national sample show urban households to be signicantly more likely to use LPG in the national as well as rural and urban subsamples; households with higher MPCE and better economic indicators are signicantly more likely to use LPG. Examining the impact of subsidy reduction on households using the 2009-10 data, again we nd that our results are hardly different from those based on the 2004-05 data. On average, households using LPG consume 10 cylinders per year with 83% using more than six cylinders the majority belonging to the richer quintiles. The subsidy cap would affect these households to the extent of Rs 1,941 per year, accounting for a very small percentage of their MPCE. It continues to be the case that the policy change does not affect the poorest households given their low LPG incidence. Conclusions Given such clear ndings, which remain unvarying with both data source and time period, we are indeed mystied that Patra labels them ambiguous. In fact,
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we nd some of the numbers and data he refers to without any source or citation in his concluding paragraph to be vague. However, it will be churlish to make too much of it, especially since after dismissing our results as ambiguous, he ends his discussion note with precisely the same conclusions and recommendations that we had made in our commentary. Agreeably, there has been some increase in the absolute levels of LPG use in both rural and urban areas, with the rate of increase being higher in rural areas as Patra explains.2 We are grateful to him for pointing out that oil marketing companies (OMCs) have an expanding distribution network in rural areas.3 The active intervention by the state and OMCs in driving this growth is commendable and should be kept up with similar intensity.
Rahul Lahoti (, J Y Suchitra ( and Prodyumna Goutam ( goutamprodyumna@ are with the Centre for Public Policy, Indian Institute of Management, Bangalore.

D C Patras primary objection in his response (The Case of LPG, EPW, 8 December 2012) is that the data for our analysis the India Human Development Survey (IHDS) 2004-05 is outdated and should not be used to comment on such an important current issue. IHDS enabled us to study the main subjects of our analysis, i e, households which do and do not use LPG, with such richness of detail that few other contemporary data sets would have allowed. For the sake of argument, even if we accept the shortcomings of using relatively dated data for analysing an issue of current signicance, it should then follow that using more recent data would yield dramatically different results, thus pointing us in a different policy direction. Patra should have then undertaken such an exercise to lend credence to his criticism of our using the IHDS data. However, we nd no evidence of this in his article. We thus test this proposition using the 66th round of the National Sample Survey (NSS) pertaining to 2009-10. This data set allows us to, by and large, replicate
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1 These numbers are based on our own calculations and veried against the NSSOs Report No 542: Energy Sources of Indian Households for Cooking and Lighting (66th round, 2009-10), while Patra reports 15.5% in rural areas and 66.2% in urban areas using the same data. The higher growth rates in rural areas should not be surprising, however, given the extent of the gap between the two areas to begin with. The data that he presents in his Table 4 would be invaluable in helping us control for supplyside factors determining LPG uptake in our estimations, one of the main concerns we discussed in the commentary.

EPW Index
An author-title index for EPW has been prepared for the years from 1968 to 2010. The PDFs of the Index have been uploaded, year-wise, on the EPW web site. Visitors can download the Index for all the years from the site. (The Index for a few years is yet to be prepared and will be uploaded when ready.) EPW would like to acknowledge the help of the staff of the library of the Indira Gandhi Institute for Development Research, Mumbai, in preparing the index under a project supported by the RD Tata Trust.

January 5, 2013