LPG Cylinders Prices Set To Rise As Govt Slashes Petroleum Subsidy: Report

The finance ministry has slashed the allocation for petroleum subsidy by two thirds to Rs 12,995 crore for the financial year 2021-22 despite increasing the number of Ujjwala beneficiaries by 10 million, said a Mint report adding that the government hopes that the gradual price increases for subsidized cooking gas cylinders will reduce its subsidy burden.

"This is part of the long-term clean-up in subsidies. We have been gradually increasing the prices of kerosene and cooking gas. This will continue next fiscal. Every year, we are releasing a lot of arrears also; so, arrears are going down. So, the amount of petroleum subsidy to be released next year is low. It is the effect of cumulative improvement," a finance ministry official said on condition of anonymity to Mint.

The unnamed official in the report also said that while petroleum prices have been on the rise with an increase in international crude oil price, cooking gas prices are not correlated and still moderate.

"Last year, there was a significant moderation in the price of cooking gas, which reduced the subsidy. Next year also, we don't expect cooking gas prices to go up the way petrol prices have gone up. It is a completely different market. The elasticity in prices is less as the transportability is less. It is not as volatile as the crude price," the official was quoted saying further.

LPG cylinder prices in India are revised once every month by state-owned oil marketing retailers based on the international benchmark rate of LPG and the foreign exchange rate of the Indian rupee.

Since 1 January 2015, the decontrol of petrol and diesel prices have reduced the fiscal burden on the government with petroleum-related subsidies now restricted to kerosene and LPG. The subsidy on LPG cylinder purchases (12 purchases per year) has been credited to beneficiaries directly in their bank accounts via the direct benefit transfer (DBT) scheme. However, consumers have stopped receiving these subsidies since May 2020, when international oil prices crashed after COVID-19 outbreak, eliminating the need for subsidy.

The FY21 Economic Survey released ahead of the Union Budget also said the decline in global petroleum prices acted as an important fiscal shock absorber during the current financial year. Besides reducing subsidy burden, the government was also able to raise its revenue collection by increasing excise duties on petrol and diesel prices, post lockdown.