The Lok Sabha has passed the bill to revise the salary of members of parliament. Much of the debate in the media has been on the wealth of current MPs and the lack of accountability. It is important to focus as well on structural issues related to remunerating legislators. Under the bill, the base salary of MPs is being raised to Rs.50,000 from Rs.16,000 per month. The daily allowance paid to MPs when they attend parliament is being hiked to Rs.2,000 from Rs.1,000. The constituency allowance is being increased to Rs.45,000 per month from Rs.20,000 and office expenses (for staff, stationery and postage) to Rs.45,000 per month from Rs.20,000. Pension for former MPs will be Rs.20,000 per month instead of the present Rs.8,000. Other than these, MPs get accommodation in Delhi, which varies from a hostel in Vitthalbhai Patel House to two-bedroom flats and bungalows, all in central Delhi. MPs get reimbursement of electricity, water, telephone and internet charges. They (and their family) are also reimbursed for 34 one-way air tickets from their constituency to Delhi. In a parliamentary democracy, compensation for legislators should be sufficient to ensure their independence and autonomy. It should attract professionals who can devote their full time to legislative work. There should be a sufficient support system to enable legislators perform their duties effectively. There are mainly three issues that need to be resolved while fixing the compensation package for legislators. First, MPs fix their own salaries and allowances, which results in a conflict of interest. Second, every time the salary is revised upwards, there is an adverse media and public reaction. The outcome is that MPs' salaries are significantly lower than that for any other position of similar responsibility in the public or private sector. The low salaries may deter honest persons, without other income sources, from contesting elections. Third, reimbursements of office expenses are classified as 'allowances'. Thus, expenses for office staff, telephone charges, etc. are often seen as part of their compensation. Contrast this with the treatment for government or private sector employees. The costs of office support staff, rental, communication and travel costs are not counted as their salary or perks. The process in India is similar to that in some countries. The US Congress and the German Bundestag determine their own salaries. There are two alternative approaches seen in some other democracies. Some countries appoint an independent authority to determine salaries. Some others peg the salary to that of public officials. For example, New Zealand has a remuneration tribunal which is tasked to fix salaries based on being (a) fair relative to levels of remuneration elsewhere; (b) fair to person being remunerated and the taxpayer; (c) adequate to recruit and retain competent persons. In Canada, a commission is appointed after every general election and salaries are then indexed to the federal government's annual wage rate index. Australia has a remuneration authority that links the salary to that in the Principal Executive Office. In the UK, the Senior Salaries Review Board determines salaries, which are then voted upon by parliament. The Scottish parliament indexes its salaries to that of British MPs. In France, the salary of the legislator is the average of the highest and lowest paid official in the seniormost level of the government. There were two distinct themes during last week's Lok Sabha debate. Several MPs discussed structural issues. Some MPs - L.K. Advani, Ramachandra Dome, Sanjay Nirupam, Shailendra Singh and Pinaki Misra - suggested that the government establish an independent commission for determining salaries. Advani pointed out that a decision to that effect had been taken in an all-party meeting held by the Speaker in may 2005 and demanded that the government announce the formation of such a commission before the end of the current session of parliament. Some MPs - Dhananjay Singh, Sanjay Nirupam and Shailendra Kumar -- focussed on the need for support structures such as office space, research staff and assistants in the constituency. They felt that these would help MPs examine proposed laws and rules and monitor the work of the government. Nirupam and Misra suggested that MPs' salaries be linked to performance; salaries should be cut for any time lost due to disruption. Some MPs highlighted the need for pension and accommodation for former MPs. Sharad Yadav, Raghuvansh Prasad Singh and Sansuma Khunggur Bwiswmuthiary requested that the pension be raised to Rs 25,000 per month. Yadav and Bwiswmuthiary also said that former MPs be allocated residential accommodation in Delhi. The bill will next be discussed in the Rajya Sabha. The government agreed that there is merit in forming an independent commission. It is however uncertain whether the government will accede to Advani's demand that the commission be announced in the next couple of days. - M.R. Madhavan This column has been published by IANS today.

Last week, oil-marketing companies (or OMCs, such as Indian Oil Corporation Limited and Hindustan Petroleum Corporation Limited) raised the price of domestic LPG in the country. [1]  The price of a domestic cylinder (14.2kg) has increased from Rs 714 in January 2020 to Rs 858.5 in February 2020.  This is a 20% hike in the price of a LPG cylinder.  Note that this is the sixth consecutive month for which LPG prices have been revised upwards.  Figure 1 shows the variation in price of a domestic (non-subsidised) LPG cylinder in Delhi over the last year.

Figure 1: Variation in price of non-subsidised domestic LPG cylinder

 

Sources:  Indian Oil and Corporation Limited; PRS.

How is the price of LPG cylinders determined?

LPG prices are revised every month.  The price is determined by public sector OMCs namely, Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, in line with the changes in the international market prices and other market conditions. [2]  The international market price affects the import parity price of petroleum products (the price that importers pay for import of product at the respective Indian ports).  This includes exchange rate, ocean freight, insurance and customs duty among others.

The Ministry of Petroleum and Natural Gas has stated that the recent hike in the price of LPG cylinder is due to a sharp rise in international LPG prices during January 2020 (from USD 448/Metric Tonne to USD 567/Metric Tonne). [3] 

What is the difference between the price of a subsidised and non-subsidised cylinder?

The price determined by the OMCs reflects the price of a non-subsidised domestic LPG cylinder.  The government modulates the effective price to provide subsidised LPG cylinders to consumers under the 'Pratyaksha Hastaantarit Laabh' direct benefit transfer (or DBT-PAHAL) scheme. [4]   Under the scheme, a consumer (with annual income of up to Rs 10 lakh) can avail DBT cash-subsidy for a LPG cylinder.   The beneficiaries buy LPG cylinders at market rate and subsequently receive subsidy directly in their bank accounts.  

With the recent increase in price of a LPG cylinder, the government has increased the subsidy amount for PAHAL consumers from Rs. 153.86 per cylinder to Rs. 291.48 per cylinder (89% increase).3   This is done to ensure that the subsidized LPG consumers are insulated from the volatility of LPG prices in the international market.  Table 1 shows the amount of subsidy provided by the government for LPG cylinder.  Note that price of a subsidised cylinder has increased from Rs 494 to Rs 567 (14.8%) from February 2019 to February 2020. 

Table 1: Difference between the price of subsidised and non-subsidised LPG cylinder

As on

Non-subsidised cylinder

Subsidised cylinder

Subsidy

February 2018

Rs 736.00

Rs 495.63

Rs 240.37

February 2019

Rs 659.00

Rs 493.53

Rs 165.47

February 2020

Rs 858.50

Rs 567.02

Rs 291.48

Sources: Unstarred Question No.1211, February 13, 2019, Ministry of Petroleum and Natural Gas, Rajya Sabha.
 Note: Prices are at Delhi. 

How many people avail the subsidy on LPG cylinders?

Currently, there are a total of 27.16 crore LPG (domestic) connections in the country.3  Of these, 26.12 crore (94%) consumers are beneficiaries under the PAHAL scheme, and therefore, can avail LPG cylinders at subsidised rates.  Note that, under the scheme, a maximum of 12 subsidised cylinders per year can be availed under one connection.  Further, a household cannot have more than one connection. 

What is the cost of subsidy for the government?

The subsidy on domestic LPG is met through the budgetary grants of the Ministry of Petroleum and Natural Gas.  In 2020-21, the government is estimated to spend Rs 37,256 crore on LPG subsidy.   This includes Rs 35,605 crore for DBT-PAHAL and Rs 1,118 crore for Pradhan Mantri Ujjwala Yojana.  This is an increase of 9.3% from the expenditure in 2019-20 of Rs 34,086 crore (revised estimate).  Note that LPG subsidy constitutes 87% of the Ministry's total budget (Rs 42,901 crore).   

Figure 2 below shows the year-wise expenditure on LPG subsidy, and as a proportion of the total budget of the Ministry from 2015-16 to 2020-21. 

Figure 2: LPG subsidy over the years (2015-16 to 2020-21). 

Sources: Union Budget Documents; PRS.

For more trends and analysis related to the finances of the Ministry of Petroleum and Natural Gas, see  here

[1] "LPG price hiked by Rs 144.5 per cylinder", Economic Times, February 12, 2020,  https://economictimes.indiatimes.com/industry/energy/oil-gas/lpg-price-hiked-by-rs-144-5-per-cylinder/articleshow/74096745.cms.

[2] Frequently Asked Questions (FAQ), Petroleum Planning and Analysis Cell,  https://www.ppac.gov.in/content/137_3_Faq.aspx.

[3] "LPG Price is Derived based on International Market Price", Press Information Bureau, Ministry of Petroleum and Natural Gas, February 13, 2020. 

[4] PAHAL-Direct Benefits Transfer for LPG (DBTL) Consumers Scheme, Ministry of Petroleum and Natural Gas,  http://petroleum.nic.in/dbt/whatisdbtl.html.