More Ghost Savings: Understanding the Fiscal Impact of India’s Direct Transfer Program — Update

Since April 1, 2015, India’s cooking gas subsidies have been distributed by electronic transfer through the Direct Benefit Transfer for Liquefied Petroleum Gas (LPG) scheme (known as DBTL, or PAHAL1 ). Under this system, which has replaced the direct sale of cooking gas cylinders at subsidized prices, households place an order for LPG with their gas distributor, receive an amount equivalent to the current (variable) subsidy amount via electronic transfer to their bank account, then pay the full unsubsidized price for the cylinder in cash on collection or delivery. DBTL was introduced with the stated aim of improving the operational efficiency of the LPG subsidy system and delivering significant savings in total fiscal expenditure by removing dual pricing (thereby reducing the consumption of subsidized LPG by non-authorized users). Throughout the process of introducing DBTL there has, however, been a notable lack of official clarity regarding the scheme’s actual fiscal effects.