Thoughts & Insights

Steep Rise in LPG Consumption Likely To Burn Govt In Terms Of Subsidy

James Paul | Mar 05 2019 07:00:00 PM
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India is the second largest consumer of liquefied petroleum gas (LPG) in the world and the consumption is skyrocketing day by day. LPG consumption in the country posting an average growth of 8.4%.

And the credit goes to the government's push to provide clean cooking fuel to every household through the Pradhan Mantri Ujjwala Yojana (PMUY). As on February 1, Oil Marketing Companies (OMCs) had released more than 6.31 crore LPG connections under the scheme. It increases the Centre’s subsidy burden also.

In fact, a record 4.07 crore new LPG connections were added in the current fiscal year alone, a jump of 45% over 2017-18, The Business Standard reported. Moreover, the three state-owned oil marketing companies - Indian Oil Corporation (IOC), Bharat Petroleum Corporation, and Hindustan Petroleum Corporation (HPCL) - have collectively set a target of adding 42.5 million customers by the end of this month.

On the flip side, the mushrooming number of beneficiaries - up 77% since March 2015 - under the scheme is increasing the Centre's subsidy burden. Under the PMUY scheme, the government provides a subsidy of Rs 1,600 to state-owned fuel retailers for every free LPG gas connection that they give to poor households.

The LPG subsidy during the first nine months of the current fiscal is reportedly already 23% higher than last year's figure - the Modi government shelled out Rs 25,700-crore subsidy over April-December 2018. The Budget for 2019-20 had, however, provided only Rs 20,283 crore in the Revised Estimates for FY19.

Furthermore, the government expects the LPG subsidy to rise over 62% to Rs 32,989 crore for 2019-2020. A part of this is expected to be rolled over from the current year.

Last week, IOC hiked LPG price by Rs 2.08 per cylinder and non-subsidised gas by Rs 42.50 per bottle, after three straight monthly reduction in rates totally around Rs 13.

A 14.2-kg subsidised LPG cylinder now costs Rs 495.61 in Delhi while a non-subsidised one costs Rs 701.50. Those with family income of below Rs 10 lakh get subsidy for 12 cylinders. For March, subsidy on LPG cylinders is Rs 206 in Delhi.

The latest Petroleum Planning and Analysis Cell (PPAC) data reveals that total LPG consumption recorded a growth of 11.1% during January 2019 and a cumulative growth of 5.7% for the April-January period. PSU OMCs together have 25.21 crore active LPG customers in the domestic category which are being served by 22,654 LPG distributors.

The LPG coverage of the country, estimated on the basis of active domestic connections and estimated households as on January 1, 2019, is around 89.9%," read its LPG Profile report. To cater to the increased customer base, 3,030 LPG dealerships were reportedly added this year, compared to 724 in 2017-18.

In January 2019, the northern region bagged the highest share in total LPG consumption (32.8%), followed by the southern region and western region at 27.2% and 22.9%, respectively. The eastern region and the northeast continue to lag behind at 19% and a miniscule 2%, respectively. Of the total number of consumers, around 242.7 million are reportedly covered under the direct benefit transfer of LPG Scheme (DBTL), or PAHAL.

LPG consumption in India is expected to grow 34% to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040.