With no subsidy, cooking fuel burns a hole in consumers' pocket

Praveen was in for a surprise when he checked his bank statement in July after six months.

The lockdowns and fear of the pandemic had prevented a visit to his bank branch in rural Uttar Pradesh. He was hoping for Rs 500-700 to be credited as subsidy for the cooking gas (liquefied petroleum gas, or LPG) he had bought over the years.

“I though some Rs 150 or so was being reimbursed for every cylinder I buy. But this time the money has not been credited to my account. I wonder where it has gone,” he said. Officially there is no way for Praveen and the thousands of LPG connection holders to know how much subsidy they can expect for a cylinder they purchase. 

The amount of money transferred would have been around 900 for six cylinders, assuming it is about Rs 150 per purchase since January.

“Targeted subsidies for cooking gas, if continued, can act as direct income transfer to the people at the bottom of the pyramid,” Devendra Kumar Pant, chief economist, India Ratings, told Business Standard.

“These people consume a large portion of additional income, whereas people from middle and upper income groups consume a smaller portion. This is especially important at a time when demand growth has plateaued,” he added.

With cooking gas prices firming up in 2021, Praveen is one of the many consumers feeling the pinch. In Delhi, the domestic LPG cylinder price has been hiked by Rs 140 to Rs 834 apiece on July 1 from Rs 694 on January 1.

It was a different situation last year. Cooking gas prices in Delhi were Rs 594 for a non-subsidised cylinder on July 1, 2020, after a price cut of Rs 120 from the Rs 714 on January 1, 2020.

The price of a subsidised domestic LPG cylinder was Rs 560 apiece in January 2020. This was increased to Rs 594 on July 1, 2020. Consumers, however, did not feel the pinch of higher prices since the price was not very high.

A global demand slump due to lockdowns had led to a crash in both prices of crude oil and petroleum products. Seizing the opportunity, the Central government phased out the LPG subsidy that successive governments had maintained.

A questionnaire sent to the Ministry of Petroleum and Natural Gas remained unanswered.

When international LPG prices began to rise in 2021, the oil-marketing companies also hiked the subsidised prices in tandem, shifting much pressure on to the consumers who had to bear a Rs 140 increase in the price of a cylinder, irrespective of their income slab.

This LPG subsidy disbursement was fine-tuned with the introduction of the direct benefit transfer programme. It was further enhanced to a voluntary removal of beneficiaries through the Give It Up programme and finally the exclusion of those with a taxable income above Rs 10 lakh in 2016.

The subsidy on LPG was done away with and what remained was some freight subsidy, which comes to Rs 20-30 a cylinder. This move of this government came after subsidies on diesel were phased out.

According to Pant, a more prudent approach would be to continue the focused subsidy instead of doing away altogether.

This leaves more money in the hands of the government, which is tightening its purse but adds to the woes of nearly 290 million households that have LPG connections but are battling high inflation, salary cuts, and job losses.