PM IAS DEC 09 EDITORIAL

1. High LPG prices are scorching the air pollution fight. Reinstating subsidies on LPG refills for low-income households can help reverse families going back to polluting fuels

Context: The sustained rise in the price of LPG cylinders has been burning a hole in many a household budget for more than a year now. The price of LPG refills has risen by more than 50% to over ₹900 per cylinder in November this year compared to around ₹600 over the past year.

• With no refill subsidies in place since May 2020, there is genuine concern about many households now slipping back to using polluting solid fuels for cooking, such as firewood and dung cakes.

Solid fuel v/s Pollution:

• Solid fuel use for cooking is the leading contributor to in-door  as well as out-door air pollution.
• Solid fuel Related premature deaths in India: estimated to be around over 600,000 every year, as per the Global Burden of Disease Study 2019.

Government initiative to tackle the problem – Pradhan Mantri Ujjwala Yojana scheme:

• the Government distributed more than 80 million subsidised LPG connections.
• Positive Impact of the scheme: As per the India Residential Energy Survey (IRES) 2020, conducted by the Council on Energy, Environment and Water (CEEW) and the Initiative for Sustainable Energy Policy, LPG has now replaced biomass as the most common cooking fuel in India.
  • Nearly 85% of Indian homes have an LPG connection and 71% use it as their primary cooking fuel, compared to only 30% a decade back.
  • This is due to Consumption-linked subsidies and gradual strengthening of the LPG distributorship.
• Limitations:
  • Around 30% of Indian households continue to rely on biomass as their primary cooking fuel, mainly due to high LPG prices and Another 24% stack LPG with biomass.
  • Pockets of biomass use: The practice of biomass usage is predominantly concentrated in rural areas, particularly among States such as Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal. Urban slums are also critical hotspots where the use of biomass for cooking is widely prevalent.
  • Reasons for biomass usage:
    • Easy availability of free biomass and
    • Lack of home delivery of LPG refills further reduce the efficacy of LPG as a reliable and affordable proposition.
    • High prices of LPG: An average Indian household would have to currently spends around 10% of its monthly expense on LPG to meet all its cooking energy needs.

Solutions for clean cooking energy access:

1. Reinstating subsidies: The 10% expense on energy needs for an average household is too high. Nearly half of all Indian households will have to at least double their cooking energy expense to completely switch to LPG at current prices. Given the loss of incomes and livelihoods during the novel coronavirus pandemic, the ability of households to afford LPG on a regular basis has taken a further hit.
   • Thus, resuming subsidies would be critical to support LPG use in many households.
   • Explore diverse approaches to identify beneficiaries. This may include:
     • Limiting the subsidy provision to seven to eight LPG refills annually.
     • Excluding well-to-do households using robust indicators. For instance, lowering the income-based exclusion limit for LPG subsidy to ₹2,50,000 a year from ₹10 lakh a year or excluding families owning a non-commercial four-wheeler vehicle can significantly reduce the number of eligible beneficiaries. 
2. Addressing Gaps in doorstep delivery: Only half the rural LPG users receive home delivery of LPG refills, while the rest have to travel about five kilometres one way to procure a cylinder. Gaps in the doorstep delivery of LPG cylinders are also present in urban pockets, particularly in slum areas.
   • Need to strengthen the LPG supply chain and enforce timely service delivery, particularly in States with a large number of Ujjwala connections and slum population.
   • Higher incentives for rural distributors, who have to otherwise service a low but distributed demand at similar commissions.
   • Looping in self-help groups could also help aggregate demand and create jobs in distant areas.
3. Create a new market for locally available biomass:
   • Pilot initiatives for Promoting the use of locally available biomass in decentralised processing units that manufacture briquettes and pellets for industrial and commercial establishments.
     • For instance, the National Thermal Power Corporation recently invited applications to supply biomass pellets to fire their power stations.
   • Incentivise entrepreneurs to participate in such activities.
   • Households can be incentivised to supply locally available biomass (including crop stubble or dung cakes) to Compressed Bio-Gas (CBG) production plants being set up under the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme.
   • Such measures would help enhance local income and livelihood opportunities, in turn encouraging rural families to use LPG on a regular basis.

Conclusion: In August, the Prime Minister launched the Ujjwala 2.0 scheme to distribute 10 million additional free LPG connections to poorer households. It shows the Government’s commitment towards promoting clean cooking energy access. But ensuring affordability and timely availability of LPG cylinders for refills would be a must to wean households away from polluting biomass and reap the benefits of the investments made in the Ujjwala scheme over the past five years. Such efforts would go a long way in improving the health and well-being of our citizens.

2. Low tobacco tax, poor health: The absence of an increase in tax on tobacco products post-GST has impacted revenue and could worsen public health

Context: In India, 28.6% of adults above 15 years and 8.5% of students aged 13-15 years use tobacco in some form or the other. This makes the country the second largest consumer of tobacco in the world.

Loss due to Tobacco:

• Health Risk: Tobacco use is known to be a major risk factor for several non-communicable diseases such as cancer, cardiovascular disease, diabetes, and chronic lung diseases.
• Economic burden: India also bears an annual economic burden of over ₹1,77,340 crore on account of tobacco use.

Issue of Taxation on Tobacco

• The Current taxation rates: The tax burden on bidis, cigarettes, and smokeless tobacco, on average, stands at 22%, 53%, and 64% in 2021, while the World Health Organization has been recommending a uniform tax burden of at least 75% for each tobacco product.
• No increase in tax since 2017: There has been no major increase in taxation of tobacco products to discourage the consumption of tobacco in the past four years since the introduction of the Goods and Services Tax (GST) in 2017 except for a small increase in the national calamity contingent duty (NCCD) in the 2020-21 Union Budget which only had the effect of increasing the average price of cigarettes by about 5%.
• A worrying trend: This means more profits for the tobacco industry and more tax revenue foregone for the government.
• Decline in tax collection: There has been a 3% real decline in GST revenues from tobacco products in each of the past two financial years. The average annual tax revenue collection from all tobacco products (based on the past three years), including excise duty, NCCD, GST, and compensation cess, is about ₹53,750 crore.
• Trend before GST:
  • Excise taxes on many tobacco products used to be regularly raised in the annual Union Budgets before the GST.
  • Several State governments used to regularly raise value-added tax (VAT) on tobacco products.  During the five years before the introduction of the GST, most State governments had moved from having a low VAT regime on tobacco products to having a high VAT regime.
  • The resulting reduction in usage: The 17.3% relative reduction in the prevalence of tobacco use among adults that India experienced between 2009-10 and 2016-17, as shown by the Global Adult Tobacco Survey, could be partly attributed to this as well.

Impact of stagnant taxation:

• Potential reversal in declining trend: The tobacco industry has been virtually enjoying four years without extended tax on tobacco products, since the introduction of the GST. This has made tobacco products more affordable post-GST as shown in recent literature from India. This means that some current smokers smoke more now and some non-smokers have started smoking. 
• Prevents reduction in use: This might jeopardise India’s commitment to achieving 30% tobacco use prevalence reduction by 2025 as envisaged in the National Health Policy of 2017 by the Government of India.
• Burden of taxation on other products: The lack of tax increase means that the tax burden on tobacco products (tax as a percentage of the retail price) decreases.

Way forward:

• Revision in GST: Given that the vast majority of tobacco taxation today is in the form of GST and compensation cess and their revision requires consensus within the GST Council, tobacco taxation has not seen any increase whatsoever under the GST since 2017.
• Higher exise: Share of central excise duties including NCCD in the total tobacco taxes decreased from 54% to 8% for cigarettes, 17% to 1% for bidis, and 59% to 11% for smokeless tobacco products, on average, from 2017 (pre-GST) to 2021 (post-GST). Several countries in the world have high excise taxes along with GST or sales tax and they are continuously being revised. 

Conclusion: The Union government should take a considerate view of public health and significantly increase excise taxes — either basic excise duty or NCCD — on all tobacco products. The upcoming Union Budget gives a perfect opportunity for this. The Budget should fix an excise tax of at least ₹1 per stick of bidis while aiming for a significant increase in the excise tax of cigarettes and smokeless tobacco products. Taxation should achieve a significant reduction in the affordability of tobacco products to reduce tobacco use prevalence and facilitate India’s march towards sustainable development goals.

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