LPG price cut, Ujjwala expansion, could cost Rs 37,000 crore annually: Who bears the load?

There has been no official clarity on whether the Union has plans to settle the bill with Oil Marketing Companies (OMC) or if OMCs would take it upon their shoulders.

A computational analysis of LPG consumer base and average gas refill data by Indian Express suggests that the twin decision by the Union government to slash cooking fuel prices in addition with expansion of Pradhan Mantri Ujjawal Yojana by adding 75 lakh poor households, could cost almost Rs 37,000 crore annually. The announcement was made on August 29 and implemented by public sector oil marketing companies (OMCs) a day after. There has been no official clarity on whether the Union has plans to settle the bill with OMCs (now or later) or if OMCs would take it upon their shoulders.

Variations like recoveries on LPG sales by retailers, international movement in crude and LPG prices, and currency fluctuations could reduce the estimate, however no official estimate has been provided yet.

Following the decision, Petroleum Minister Hardeep Singh Puri mentioned in interviews to television channels that OMCs’ earning performance in April-June quarter remained strong and signaled expectations of robust financial health in July-September as well. This creates the likelihood for OMCs to absorb the impact of LPG price cut: a decision that is set to benefit over 31 crore domestic LPG consumers.

Out of 31.4 crore domestic LPG consumers, 9.6 crore are poor households registered under PM Ujjwala Scheme. The government currently provides a subsidy of Rs 200 per cylinder to Ujjwala beneficiaries by way of direct bank transfers for up to 12 refills per year. Sources have confirmed that the subsidy cost of scheme expansion would be covered by the government. This would mean that cumulative price cut for Ujjwala beneficiaries would be Rs 400 (Rs 200 price cut and Rs 200 scheme subsidy)

However, data suggests that the very nature of the Ujjwala direct bank transfer scheme is such that it is required for the family to refill cylinders before receiving subsidy. This has discouraged many from reaping benefits of the scheme as inflation is weighing down heavily on the poor. Of 9.6 crore beneficiaries,  9.6 per cent took no LPG cylinder refills, 11.3 per cent took only one refill and 56.5 per cent took four or fewer refills in 2021-22, according to data provided in the Lok Sabha in July 2022 and data from a response given in the Rajya Sabha on August 1, 2022.

India imports about 58 per cent of its domestic LPG consumption, and prices of LPG in the country are based on Saudi Contract Price (CP).