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The steep rise in India’s consumption of liquefied petroleum gas (LPG) does not seem to be abating any time soon. Cooking gas consumption grew at 16 per cent in September, the fastest pace in three-and-a-half years, or 42 months for which official data is available, on the back of easing of the cap on subsidised cylinders per household.
“LPG consumption for the thirteenth month in a row recorded a positive growth of 16 per cent during September 2014 and with a cumulative growth of 11.2 per cent for the period April-September 2014,” said the latest report on petroleum products sales released by Petroleum Planning and Analysis Cell (PPAC), the oil ministry’s technical arm. LPG consumption stood at 1.552 million tonnes in September against 1.344 million tonnes in the year-ago period.
The report did not reveal the break-up of the consumption growth in subsidised (accounting for 80 per cent of total consumption) and unsubsidised categories. Total LPG consumption had grown at 8.5 per cent in the previous month of August with subsidised consumption growing at 13.4 per cent and unsubsidised consumption registering a 70 per cent decline “mainly due to increase in subsidised cylinders from nine to 12 a year,” according to PPAC.
The fresh data establishes a sharp jump in domestic LPG sales along with a major drop in commercial sales in the current year, since the cap on subsidised cylinder was raised from nine to 12 in January 2014, cementing concerns over diversion and black-marketing of subsidised cylinders for commercial purposes.
With heavy LPG subsidies taking a toll on oil marketing companies’ underrecoveries and the government’s petroleum subsidy burden, the United Progressive Alliance government had imposed a cap of six cylinders per household on LPG sales in 2012. The cap resulted in a 4.9 per cent dip in subsidised consumption between October 2012 and January 2013 when the cap was eased to nine cylinders. Commercial sales grew at 24 per cent during the period.
Over the next year until January 2014 when the nine cylinder cap was in place, subsidised sales still registered a 2.2 per cent decline. However, months before the general elections of May 2014, the cap was raised to 12 cylinders in January this year, kicking off an increase in demand for subsidised cylinders.
In 2012-13, subsidised LPG accounted for 24 per cent, or Rs 39,558 crore, of the total under recoveries of Rs 1.61 lakh-crore of oil marketing companies (OMCs) on sale of three sensitive products — diesel, LPG and kerosene. The share went up to 33 per cent in FY14 and is likely to rise to 47 per cent of the total estimated underrecoveries in the current financial year.
Apart from the easing of the cap on subsidised cylinders, the rise is also attributed to sluggish growth in domestic LPG prices and the delay in rolling out direct benefit transfer, or DBT, in LPG distribution.
The government had to bear Rs 85,000 crore of FY14’s losses of Rs 1.39 lakh crore as petroleum subsidy burden. Prices of subsidised LPG, which accounts for 86 per cent of OMCs’ LPG sales, have been revised only twice in the past two years. The twin revisions have led to a mere 3.7 per cent rise in the price from Rs 399 a cylinder in July 2012 to Rs 414 a cylinder now.
“LPG demand growth is expected to remain high due to increased cap of subsidised cylinders, which tends to encourage the diversion of domestic LPG for auto LPG and commercial LPG purposes where prices are deregulated and almost double that of subsidised domestic LPG,” according to research and ratings agency Icra.
The PPAC report also shows that petrol consumption grew 21.6 per cent in September, the highest since May 2013, mainly on account of festivals that spruced up vehicular movements, increased two-wheeler movement due to less rains and low base of consumption during September last year. Also, diesel consumption dipped by a marginal 0.2 per cent in September because of speculation over a cut in prices.
