Leading business chambers and rating agencies have termed retrograde the Cabinet decision to raise the number of subsidised LPG cylinders from nine to 12 per household a year, and said it would hit oil marketing companies (OMCs).

In a statement here on Friday, Federation of Indian Chamber of Commerce and Industry president Sidharth Birla said raising the quota and delinking LPG subsidy from Aadhaar were economically retrograde at a time when fiscal considerations must be balanced with welfare measures.

“FICCI believes that the rollout of the direct cash transfer scheme last year was a step in the right direction. We need to recognise that implementation is a drawn-out process and cannot be without glitches. We do not have the luxury of taking two steps forward, one step back.”

Subsidy burden up

Global credit rating agency ICRA termed the Cabinet decision credit negative for the OMCs. “The hike in [LPG] quota is expected to increase the subsidy burden by Rs. 5,000 crore on an annual basis and adversely impact state-run OMCs, which are already reeling under a very high subsidy burden, aggravated by elevated crude oil prices and depreciation of the rupee,” it said in a statement.

The move could also result in diversion of subsidised LPG to the commercial sector and shift the burden of LPG subsidy on the OMCs, ICRA said. Its senior vice president and co-head, Corporate Ratings, K. Ravichandran, said the increase in under-recoveries of the OMCs, coupled with delays in compensation by the government, was likely to strain the OMCs’ finances further.

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