HindustanTimes Tue,23 Sep 2014

RBI governor Raghuram Rajan questions LPG cap hike

New Delhi, Hindustan Times  New Delhi, January 30, 2014
First Published: 21:38 IST(30/1/2014) | Last Updated: 21:43 IST(30/1/2014)

Reserve Bank of India governor Raghuram Rajan on Thursday expressed doubt over the government's decision to raise the cap of subsidised LPG cylinders from nine to 12, saying “one should be careful about expanding misdirected subsidies”.

“We have to be very careful because we need to spend on very important things we are not spending on,” Rajan said in his interview on TV show Devil’s Advocate.

On being asked whether an increase in the cap on LPG cylinders would “expand the misdirected subsidy”, Rajan said: “I believe there is a certain amount of population that can benefit from subsidised LPG cylinders. But beyond a certain point you are reaching people who can well afford to pay for it… Whose pocket is it coming from? It’s coming from the pockets of people who are getting subsidised LPG.”

“You are going from 87% of the population to 97% of the population. If you are subsidising 97% of the population, you are basically subsidising people who are paying for it themselves,” he added.

The Cabinet Committee on Political Affairs (CCPA) on Thursday decided to raise the annual cap on supply of subsidised LPG cylinders to 12 from the existing nine, and also put on hold LPG subsidy payment into bank accounts linked to Aadhaar cards.

“Total sale of cylinders with subsidy would come to 95.29 crore cylinders and the total annual subsidy burden at the rate of Rs. 800 per cylinder will come to Rs. 80,000 crore,” petroleum minister M Veerappa Moily said after the announcement. The additional fuel subsidy arising out of the hike in number of cylinders would be around Rs. 5,000 crore, he added.

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