SUBJECT: COMPARATIVE JURISPRUDENCE

PROJECT WORK ON THE TOPIC: CAP ON LPG CYLINDER SUPPLY [IN LIGHT OF JEREMY BENTHAMS VIEW OF JUSTICE]

SUBMISSION TO: PROFESSOR AMITA DHANDA [PROFESSOR OF LAW]

SUBMITTED BY: PARUL PRASAD 1ST YEAR, LL.M ROLL NUMBER - 2012-28

AT NALSAR UNIVERSITY OF LAW HYDERABAD

DATE OF SUBMISSION: 10-10-2012

CONTENTS

INTRODUCTION ................................................................................................................ 3 BENTHAMS UTILITARIAN ARGUMENT .............................................................................. 5 CONCLUSION .................................................................................................................. 10 APPENDIX....................................................................................................................... 11

INTRODUCTION
This project paper starts from the empirical observation on the cap on domestic LPG supply: 1. On 5th September, 2012 - The petroleum ministry had moved a Cabinet note seeking immediate hike in diesel and cooking gas and also limiting the supply of subsidised LPG cylinders to four-six per household in a year, after the Finance Ministry said that it has no money to provide for fuel subsidy. The ministrys proposal to the Cabinet Committee on Political Affairs (CCPA) also included barring households with income of more than Rs 50,000 per month or Rs 6 lakhs in a year from getting subsidised LPG cylinders. 2. On 13th September, 2012 - The CCPA took the following decision to be implemented with effect from the midnight of 13/14 September 2012: Restrict the supply of subsidized domestic LPG cylinders to each consumer to 6 cylinders (of 14.2 Kg) per annum. Any number of cylinders will be available over and above the cap of 6 cylinders at market rate. The number of subsidized LPG cylinders available to each consumer in the remaining part of the current financial year [2012-13] will be 3 cylinders. While subsidized cylinders will continue to be available at Rs. 450 per cylinder, the market rate of domestic LPG cylinders at non subsidized rates will be notified by the OMCs [Oil Marketing Companies] on monthly basis. 3. UPA constituents like the Trinamool Congress (TMC), DMK, Rashtriya Janata Dal and Nationalist Congress Party along with the Opposition parties have slammed the decision and want an immediate rollback. The Trinamool Congress demanded that at least 12 subsidised cylinders should be provided to every consumer in a year but the government's refusal to roll back the decision drove the TMC out of the UPA. 4. On 19th September, 2012 - In a major step to accommodate demands of its allies, Congress president Sonia Gandhi directed Congress ruled states to increase the number of subsidised LPG cylinders from six to nine for each household in a year. Haryana, Maharashtra, Delhi, Andhra Pradesh, Rajasthan, Arunachal Pradesh, Kerala, Uttarakhand, Assam, Meghalaya, Mizoram and Manipur have congress governments. 5. On 21st September, 2012 - The government abolished the 5% custom duty and 8% excise duty on non-subsidised domestic LPG cylinders. 6. On 2nd October, 2012 The Oil Marketing Companies have decided to revise the prices on the first day of every month. State-owned OMCs have hiked the price of non-subsidised LPG by Rs 127 per cylinder on account of increase in international oil prices. Thus, every additional cylinder at non-subsidised rates will now cost Rs. 883.5 in Delhi Rs. 894 in Mumbai Rs. 913 in Kolkata Rs. 877.50 in Chennai (source - The Indian Oil Corporation).

In states like Uttar Pradesh and Bihar, consumers will have to shell out nearly Rs 900 for the same. Even the prices of subsidised LPG will go up across the country, depending on the taxes and levies imposed by individual states.

7. On 6th October, 2012 Subsidised LPG price has been hiked by Rs 11.42 per cylinder following government decision to raise commission paid to the dealers from Rs 25.83 per 14.2-kg cylinder to Rs 37.25. The commission paid on market price or non-subsidised LPG too has been raised by Rs 12.17 to Rs 38 per cylinder. Accordingly, a non-subsidised LPG cylinder price will go up from Rs 883.5 to Rs 921.5.

BENTHAMS UTILITARIAN ARGUMENT

Jeremy Bentham founded the doctrine of utilitarianism. Its main idea is: The highest principle of morality is to maximise happiness, the overall balance of pleasure over pain. According to Bentham, the right thing to do is whatever will maximise utility. By utility, he means whatever produces pleasure or happiness, and whatever prevents pain or suffering. Bentham arrived at his principle of utility by the following line of reasoning: We are all governed by the feelings of pain and pleasure. We all like pleasure and dislike pain. The utilitarian philosophy recognises this fact, and makes it the basis of moral and political life. [1] In this project paper, the researcher tries to analyse the policy Cap on the LPG cylinder supply on the basis of the ideologies of the jurist - Jeremy Bentham. According to Bentham, the sole object of government ought to be the greatest happiness of the greatest possible number of the community. [2] Bentham argues that maximizing utility is a principle not only for individuals but also for legislators. In deciding what laws or policies to enact, a government should do whatever will maximize the happiness of the community as a whole. Community, as per Bentham, is a fictitious body, composed of the sum of the individuals who comprise it. The interest of the community then is the sum of the interests of the several members who compose it. [3] India is a welfare state. The main duty of the government is to make policies for the welfare of the masses. Government policies should promote the greatest good for the greatest number of people. However, the decision of CCPA to reduce the cap on subsidised LPG cylinders to 6 is hurting every kitchen. Now the Oil Marketing Companies have decided to revise the prices of LPG on the first day of every month. This has added to the common man's woes as this means that the consumers may be forced to pay even higher price in the future. This policy of the central government is anti-people and has hit the common man adversely. It is anarchy that has prevailed in this country. The rising prices of LPG and inflation will not only make it difficult to buy but also to cook food. There are some commodities which affect the society on a very large scale in terms of economic as well as social fronts. Cooking Gas come under such categories, it has direct relation to the last household of the country. Thus any increase in the price of these commodities directly affects the life of ordinary people. This policy has hit the middle class and the poor peoples household budget. The cooking gas is must for the daily needs of any household and any restriction on its subsidy and supply cannot be justified. This policy is not maximising the pleasure of the masses and is in fact giving them pain. So, in Benthams view such policy should not be formulated for a welfare state. 73% of the Indians consider LPG subsidy necessary. [4] In the month of October, the price of non-subsidised cooking gas was hiked by Rs. 127 per cylinder to Rs. 883.50. Thus, every additional cylinder at non-subsidised rates will now cost (in the month of October) Rs. 883.5 in Delhi, Rs. 894 in Mumbai, Rs. 913 in Kolkata and Rs. 877.50 in Chennai. [5] To add to our worry, the UPA government has said that in case of subsidised LPG, the prices of the cylinder would vary from state to state depending on the taxes and levies imposed by individual states. Here, the government talks of offering subsidies on cooking gas and at the
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2 3
4

Michael J. Sandel, Justice: Whats the Right Thing to Do?

Jeremy Benthams Theory of Legislation. Translated by R. Hildreth

Michael J. Sandel, Justice: Whats the Right Thing to Do? ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html 5 The Indian Oil Corporation data

same time levies tax on these products in the market, than what is the meaning of subsidising? Moreover, the subsidised LPG price has been hiked by Rs 11.42 per cylinder following government decision to raise commission paid to the dealers from Rs 25.83 per 14.2-kg cylinder to Rs 37.25. As a result, subsidised LPG in Delhi will now cost Rs 410.42 per cylinder, In Kolkata Rs 412.42, in Mumbai Rs 434.42 and in Chennai Rs 397.92. The commission paid on non-subsidised LPG too has been raised by Rs 12.17 to Rs 38 per cylinder. Accordingly, a non-subsidised LPG cylinder price will go up from Rs 883.5 to Rs 921.5. All this have increased the plight of the citizens resulting in more problems for the society already grappling with price rise and poverty. Jeremy Bentham professed that an action may be said to be comfortable to the principle of utility, when the tendency it has, to augment the happiness of the community is greater than any it has to diminish it. Similarly, a measure of the government may be said to be conformable to or dictate the principle of utility, when in the like manner the tendency which it has to augment the happiness of the community is greater than any which it has to diminish it. [6] The LPG cooking gas limitations enforced by the government and the ever increasing price for additional requirement has hurt the poor (lower class), middle class and upper middle class financially. Nobody can survive today without a gas connection. By restricting the number of cylinders the government is only troubling the common man. This policy of the government has the greater tendency to augment the sorrow of the community than any which it has to diminish it. Bentham would never have agreed to such a policy being implemented at all because according to him, it is the greatest happiness of the greatest number that is the measure of right and wrong. [7] As such this policy would be wrong from the Benthamite point of view. For Bentham, the quantity of happiness was the deciding factor. He said that a law should be judged good or bad depending upon whether or not it increased general happiness of the population. This policy of the government fails to increase the general happiness of the majority of the population. The government stands isolated with 93 per cent of Indians saying that the policy is unjust. [8] The business of government, according to Bentham, is to promote the happiness of the society by furthering the enjoyment of pleasure and affording security against pain. The test of good government is not natural right, but the general happiness of the governed. [9] The government of India has overlooked the severe consequences that the policy may have on the people. On an average, a cylinder lasts for a month in most homes. According to a survey report, 70% of the Indians say that they consume 1 cylinder a month while 12% say that they consume 2 cylinders in a month. [10] This will mean that annually the extra expenditure on cylinders alone will be more than Rs 5,000. India is a country in which 65.0% of the urban population uses LPG for cooking purpose, while 11.4% of the rural population uses LPG for cooking. [11] A majority of the Indian population are either self-employed, salaried earner or casual labourers [12] and as such it becomes very difficult on their budget to sustain the ever increasing prices of commodities especially commodities like cooking gas, which is a necessary requirement. The government policy on capping the supply of subsized gas cylinders limited to 6 is too less and it has hit the household budget of many. Multiple pricing
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7 8

Extract of Bentham The principles of morals and legislation

Extract from the book A Fragment of Government by Jeremy Bentham (published in 1776) ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html

10 11

Jeremy Benthams Theory of Legislation. Translated by R. Hildreth

Ibid. Indian Census report 2011

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http://indiatoday.intoday.in

of cylinders, with the possibility of price variation every month, has also put consumers in a spot. This has added to the worry. According to a survey report, 73% of the Indians feel that 12 cylinders a year should be the limit on subsidised LPG supply per household. [13] Thus, in evaluating this policy according to Benthams theory, it is found that the UPA government has failed to perform the business of government, which is to promote the happiness of the society. Subsidy in cooking gas is a basic welfare policy that the government is obliged to provide for the benefit of the people. However, this legislation by the government has worked like drilling holes into common mans pocket. Bentham argues that the legislator is an interpreter and a servant to the people. According to him, a good law conforms to the general expectation. The legislator must understand the direction of expectation, for the purpose of acting in concert with it. Bentham further asserts that, good laws are those for which good reasons are assignable. Bentham believes that laws should include a promulgation of reasons. Explaining the reasons would allow the law to be more easily understood. Therefore, the legislator must demonstrate that a law is conformable to the principal of utility; in order to do so, a reason must be given to every law. The government of India in making this policy had said that capping of cylinders will lead to reduction in misuse/diversion of subsidized cylinders and it will also reduce the underrecovery of OMCs [Oil Marketing Companies]. Oil PSUs have been cribbing, about underrecovery of their costs in selling petroleum products including LPG, however, neither the government nor the oil PSUs have revealed their cost details. That is to say, what are the materials cost, conversion costs (direct costs) per unit of their output and what are their total fixed costs, with comparatives over last 5 years and explanations to the consumers about the variations in such costs, under-recoveries etc. This is the minimum the Govt should disclose to consumers before making any policy. The case of LPG shows something deep that is unseen. First, limit of 6 subsidised cylinders per customer then the price of unsubsidised domestic cylinder was priced at Rs. 734-735. Later government removed Custom and excise duty on uncapped domestic cylinder and this should bring down the price to around Rs. 640 (Rupees 97 was the Custom and Excise duty). [14] However, now within a month the oil companies have raised the price of uncapped domestic cylinder to Rs. 883.50 plus. Now where is transparency in this? What international price went up? And when did it go up? And what is the effect of reduced Rs Vs USD exchange. Bentham argued that, In accordance with the principal of utility, [the legislator] ought never to impose a burthen but that he may confer a benefit of greater value. [15] The rationing of subsidised LPG cylinders will lower the central government's fiscal deficit for this financial year only by 0.2% [16] but the effect of the policy or the burden on the people is far greater. The government has targeted a commodity that will directly hit the common man. It is absolutely unjustified on the part of the government to raise the price of an essential good i.e. cooking gas. In determining whether an action (or rule) conforms to the Principle of Utility, we must consider these factors: 1. Intensity
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2. Duration

ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html

http://zeenews.india.com/business/news/economy/duty-on-non-subsidised-lpg-waived-7th-cylinder-to-cost-rs-97less_60778.html 15 Theory of legislation by Jeremy Bentham 16 http://www.financialexpress.com/news/diesel-price-hike-will-lower-fiscal-deficit-by-only-0.2-says-finmin/1002760/

3. Certainty 5. Fecundity 7. Extent

4. Proximity 6. Purity

The researcher would now examine each of these with the issue under discussion. Intensity: How intense will the pleasure or pain produced by the action be? How severe is the suffering resulting from the action? The suffering of the people as result of this policy is very severe. The cap on subsidised gas cylinders is too less. India is a country in which 65.0% of the urban population uses LPG for cooking purpose, while 11.4% of the rural population uses LPG for cooking. [ 17] A majority of the Indian population are either self-employed, salaried earner or casual labourers [18] and as such it becomes very difficult on their budget to sustain the ever increasing prices of commodities especially commodities like cooking gas, which is a necessary requirement. This policy is very harsh, it is an unjust step taken by the government, having total disregard for the welfare of the people. With the government increasing the price of subsidised LPG also, people fear that a time is not far away when the subsidy on LPG would be of no practical benefit to the people at all. Duration: How long will the pleasure or pain last? The pain suffered by the people is permanent. Every household would get only 6 subsidised cylinders a year, which according to a survey report, on an average lasts 1 month. So the people will have to buy at least 6 cylinders at market price, which according to the Oil Marketing Companies would vary every month. This month itself the prices of LPG has been changes twice so far. At the beginning of this month the price of uncapped LPG was raised from Rs.745 to Rs.883.50, but soon after the price was again increased from Rs. 883.50 to Rs.921.50. Certainty: Will the action produce the pleasure or pain you suspect? How guaranteed is the pleasure/pain? How confident are you that the intended consequences will be the actual consequences? This policy is very certain to produce pain, to larger extent of people, as I have already illustrated above. Except the UPA government itself, none are supporting this policy. Neither the people nor any political parties have accepted this decision of the government. This policy has been strongly criticised as being anti-people. Proximity: How long a delay will there be between the action and the resulting pleasure or pain? There is a direct proximity between the policy and the resulting pain of the people.

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Indian Census report 2011

http://indiatoday.intoday.in

Fecundity: Fecundity means productiveness. A productive pleasure is one which is likely to be followed by other pleasure of the same kind and a productive pain is one which is likely to be followed by other pains of the same kind. This policy is a productive pain for the people as it is likely to be followed by other pains of the same kind. Easy fluctuation of LPG prices has only added to peoples worry. This policy only serves the governments requirement and it totally disregards its effect of on the masses. Purity: A pure pleasure is one which is not likely to produce pain. A pure pain is one which is not likely to produce pleasure. This policy is a pure pain to the people, which is not likely to produce any pleasure. This policy is a mixture of more negative (greater suffering of the people) and less positive (benefit to the government from the deal). Extent: How many people are affected by this pain or pleasure? This policy of the government fails to increase the general happiness of the majority of the population. The UPA government has not been realistic in fixing a cap on subsidised LPG. The government stands isolated with 93 per cent of Indians saying that the policy is unjust. [19]

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ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html

CONCLUSION
Utility or interest of a community, according to Bentham is based on the notions of good and evil through recognition that evil is pain, or the cause of pain and that good is pleasure, or the cause of pleasure. Welfare of society as a whole is not really served by the exorbitant prices charged in hard times. Cap the number of subsidised LPG cylinders at six per household a year is a very harsh policy, having complete disregard about the effect of such policies on people. If the prices of essential goods have to be hiked then the Price rise of any such product always has to be in phases. You cannot increase the price of an essential commodity by 85% at one time; gradual price rise helps in absorbing these changes for the common people. A slab system with a marginal hike in price for extra cylinders can be implemented, because for the affluent, paying inflated prices for a cylinder of cooking gas may be annoyance; but for those of modest means, such prices pose a genuine hardship. This proposal rationalizes the move on the ground that the present system does not differentiate between the needy and those who can afford to pay market price. In the present system even a billionaire get 6 cylinder of cooking gas at subsidised rate. Cooking gas price rise also hamper Governments plan to promote the use of clean fuels for cooking in rural areas since people would not prefer costly cooking gas to other cheaper domestic alternatives (i.e. woods and uplas). We must also stop misuse of subsidized LPG in cars, water heaters and small hoteliers/eateries. The government can initiate following steps. 1. Change the colour of commercial LPG cylinders to Yellow 2. Start a billing system showing cylinders booked in past 12 months 3. LPG consumer-card should have names of those having "Adhar Card number"

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APPENDIX

SOURCE: ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html

SOURCE: ibnlive.in.com/news/india-rejects-upas-reforms-even-pm-poll/295839-37-64.html __________________________________________________________________________________

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SOURCE: Census report comparison (2001 and 2011) The use of LPG for cooking purposes has increased in the past 10 years. As per the 2011 census report 55.8% of the total population has kitchen at home. 28.5% of the total Indian population uses LPG for cooking purposes whereas 49% of the population still uses firewood for cooking. 65.0% of the urban population uses LPG for cooking purpose, while 11.4% of the rural population uses LPG for cooking. _________________________________________________________________________________

SOURCE: http://indiatoday.intoday.in Report dated: March 2012 This graph shows that a majority of the people from lower class and middle class are either - self employed, salary earner or casual labourers. Their income as such is fixed or not much, and there is already a burden on them because of the ever increasing inflation rate. At this point the cap on subsidised LPG and the ever increasing rates of uncapped cooking gas has come as a big blow to the common man. Hike in the price of LPG cylinder time to time and allocation of mere 6 subsidized cylinders to a family in a year has really upset the homely budget.

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SOURCE: CNN-IBN Urban India Opinion Poll: (http://www.rediff.com/news/slide-show/slideshow-1-poll-93-per-cent-urban-indians-say-lpg-cylinder-cap-unjustified/20120927.htm) The poll was conducted in six cities - Delhi, Mumbai, Kolkata, Chennai, Ahmadabad and Lucknow.
Major findings of the survey:

1. Is the govt justified to limit subsidised LPG cylinders? NO: 93% YES: 6% Can't say: 2% 2. What should be the limit on subsidised LPG cylinders? 6 cylinders a year: 3% 15 cylinders a year: 8% 8 cylinders a year: 11% 12 cylinders a year: 73% 3. Does limiting discounted cylinders help manage economy? NO: 73% YES: 24% Can't say: 2% 4. Most negative factor against UPA Price Rise: 50% Corruption: 34% Ineffective governance: 12% 5. What concerns you most? Rising prices & inflation: 57% Lack of safety and security: 7% Corruption: 32%

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