Low petrol prices, phased rise in LPG rate to bring down subsidy

Analysts say the subsidy burden on both LPG and kerosene is likely to be around Rs 35,000 crore

Low international petroleum prices, coupled with phased increase in price of both kerosene and liquefied petroleum gas (LPG), are likely to bring relief to the government on the oil subsidy front. Oil marketing companies (OMCs) are passing on the reduction in government subsidy on LPG by increasing prices by Rs 4 every month.

“Depending on the cost of the cylinder, every month there is a marginal reduction in the subsidy by increase in prices of Rs 4 a cylinder,” said a senior executive of an OMC.

According to analysts’ estimates, the subsidy burden on both LPG and kerosene is likely to be around Rs 35,000 crore — of which Rs 5,000 crore is estimated to be kerosene’s share. The revised government estimates, however, provided for Rs 33,686 crore this year, part of which has been used for funding rollover of last year’s subsidy.

In 2018-19, the petroleum subsidy was Rs 37,397 crore. This was a sharp increase from Rs 25,552 crore in 2017-18. Brent crude price was up 3.79 per cent at $34.48 a barrel on Friday.

 

 

The subsidy is the amount reimbursed by the government to public sector OMCs for selling the product below the market price. “Based on the price of LPG in the global market, the subsidy amount goes up or down. If the prices are low, which should ideally be the case for the next few months, the subsidy will go down,” the official added.

In March, the price of non-subsidised LPG was cut by Rs 53 per 14.2-kg cylinder from Rs 858.50 a cylinder to Rs 805.5 in Delhi because of the fall in international prices.

According to official data, the subsidy borne by the government increased from Rs 153.86 a cylinder in January to Rs 291.48 in February. For Pradhan Mantri Ujjwala Yojana (PMUY) consumers, the subsidy borne by the government increased from Rs 174.86 a cylinder to Rs 312.48. Simultaneously, prices of subsidised cylinders increased from Rs 560.14 to Rs 567.02 a cylinder in February to pass on some of the increase to consumers.

The government subsidises 12 LPG refills a year for those earning less than Rs 10 lakh annually. Those earning more or using more than 12 cylinders have to pay a non-subsidised price. 

“In February, there was a historic hike of Rs 144.5 based on the international price increase only for non-subsidised cylinders. Which came down in March,” the official added. This was because the international price of LPG in January increased from $448 for a tonne to $567a tonne.

The retail price in March came down to Rs 534.1 a cylinder. LPG is priced on preceding months’ average of global price.

According to data available with the ministry of petroleum, LPG consumption recorded a growth of 6.1 per cent in January and a cumulative growth of 7.4 per cent so far in financial year 2019-20.

In January, the northern region had the highest share in total LPG consumption of 32.7 per cent followed by the southern region at 26.8 per cent, western region at 22.6 per cent, eastern region at 15.4 per cent and northeastern region at 2.4 per cent. The northeastern region saw the highest growth of 27.5 per cent in total LPG consumption in the month.