Oil Ministry mulls reinstating subsidised LPG prices, survey in progress | Details Here

The Ministry of Petroleum and Natural Gas is evaluating a threshold at which the subsidy on Liquefied Petroleum Gas (LPG or cooking gas) will be reinstated. According to a senior government official in the know, a survey is currently being conducted to determine the price at which maximum consumers will keep buying domestic cylinders. One of the options also being considered is to limit any subsidy disbursal only to Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries.

This was needed after global LPG prices collapsed and the government eliminated LPG subsidy in May 2020. A domestic 14.2 kg LPG cylinder cost Rs 581.50 apiece in the national capital during the time. The price has steadily risen since but LPG subsidy has not been resumed. A domestic LPG cylinder now costs Rs 884.50 apiece in Delhi, the highest ever price for a ‘subsidised’ LPG cylinder.

While there is nil subsidy on a domestic cylinder in Delhi, the centre continues to subsidise freight costs in some states. The exact quantum of subsidy in each case varies, but it is largely less than Rs 30 apiece. This is being done to bring some uniformity in the effective price of a domestic cylinder across the country.

 

A survey is presently being conducted to try and figure out the threshold to which consumers can buy domestic LPG cylinders comfortably. LPG is a scarce commodity in India and the government intends to continue keeping a check on prices,” an official told Business Standard.

“The government is monitoring current prices and looking for trends that show a dip in consumption. Since PMUY beneficiaries are considered to be financially most vulnerable, an option being considered is to extend any fresh subsidy allocation only to them. A call on the quantum of subsidy to be offered and the effective price of a subsidised LPG cylinder will be taken after the outcome of the survey,” the official added.

It is expected that there will be a little over 300 million LPG consumers in India by March 2022. Of these, there will be around 207.2 million non-PMUY (or regular) LPG consumers in the country. Under the present regime, all consumers are bearing the full price of an LPG cylinder for a refill.

 

To ease the burden on consumers, the government regulates the price of a domestic LPG cylinder sold by public sector undertaking (PSU) companies through budgetary subsidy. This subsidy amount is transferred into the accounts of the consumers after a purchase. The centre also tends to dictate the price at which domestic LPG is sold by the three PSUs, Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) that together have over 95 per cent of the market share.

LPG price for BharatGas consumers under a privatised BPCL

Despite some apprehensions over costs being disallowed and notional losses, oil PSUs adhere to the centre’s diktats on LPG price. But with the privatisation of BPCL on the cards, there is a possibility that the new owner may not listen to the centre’s directives. It’s not that oil PSUs do not sell at a margin, but they or any new private entity will certainly seek more.

 

This puts around 84.5 million cooking gas consumers of BharatGas, BPCL’s LPG division in a quandary. Of these, over 21 million come under the PMUY, indicating even more sensitivity to higher prices.

But oil ministry officials intend to keep BharatGas LPG prices under check. “Whosoever purchases BPCL will have to adhere to the prices fixed by the Centre for domestic users eligible for subsidy. BharatGas has a large chunk of the domestic market and consumers are price sensitive,” an oil ministry official said.

In December 2015, the centre withdrew LPG subsidy to those having a taxable income above Rs 10 lakh per annum. Officially, everyone else is still eligible to recieve LPG subsidy from the annual Budgetary allocation.

“Subsidy for eligible BharatGas consumers will continue and the new owner will also have to maintain the effective price to beneficiaries. So, if Indane (IndianOil’s LPG division) and HP Gas (HPCL’s LPG division) are selling a domestic cylinder for say Rs 900 (effective price after subsidy) in a city, BharatGas consumers will continue to get it at Rs 900 for the same category of beneficiaries, even after BPCL’s privatisation,” the official added.