Statsguru: LPG price cut may reduce retail inflation rate by around 30 bps

The government’s decision to cut gas prices by about a fifth has gone some way in making it more accessible.

It recently reduced prices by Rs 200. The 14.2 kilogram liquefied petroleum gas (LPG) cylinder is now priced at Rs 903 in Delhi. The move is expected to reduce the retail inflation rate by around 30 basis points. Gas prices are now the lowest since October 2021. Prices were lower than Rs 700 in 2020 (chart 1).


 

Higher prices affect a large segment of India’s population. The number of people using LPG cylinders, however, has risen to over 300 million. Notably, the number of consumers who have signed up for subsidised gas is also going up. There was one subsidy beneficiary for every 10 active LPG consumers in 2017; it is now one for every three (chart 2).

Consumption of LPG has accordingly been going up over the years. Production was close to consumption in the early 2000s. This has since changed with an increased shift towards clean cooking fuel. The current production is less than half of current consumption (chart 3).



The imports of LPG have been on the rise despite higher prices after the pandemic, up nearly 50 per cent since 2019 (chart 4).

There are indications that even larger numbers could seek LPG connections in the years to come. Data from the National Family Health Survey (NFHS) showed that only 42 per cent of rural households had adopted the use of LPG as a fuel as late as 2019-21. This still represents a sharp rise from less than 20 years ago. Only a fourth of all Indian households used LPG as a cooking fuel in 2005-06, and less than a tenth of all rural households did so (chart 5).
 

Penetration remains low in many states. Against a national average use of 41 per cent, as many as 68 per cent of the households in Jharkhand reported using solid cooking fuels, the highest incidence in the country, followed by Chhattisgarh (66 per cent), and Odisha (65 per cent). The majority of people in India’s largest state, Uttar Pradesh, still rely on solid fuels like wood, coal, and dung cakes to cook their food (chart 6).