With the Covid-19 situation gradually easing across the country, and when Saudi Aramco has hiked the LPG prices per metric tonne to $870 for propane and $830 for butane in November, from $800 and $795, respectively, in October, in order to control the surging main cooking fuel price, the Modi government may restore the LPG subsidy from next month.
Even as the Modi government has stopped the LPG subsidy from July 2020, on account of a sharp fall in international LPG benchmark prices (Saudi Aramco), the international prices, however, had started rising since November 2020. But a massive rise has taken place in the current year (2021).
Stepping Up The Gas?
As Indian LPG is a 60:40 mix of butane and propane, volatility in the prices of the two fuels has an impact on LPG prices in the country.
July 2020: This is the month when the subsidy under the DBTL scheme was stopped. The reason is the crash in international benchmark prices. LPG prices for propane and butane per metric tonne at the beginning of the year 2020 were $565 and $590, respectively. But the prices dropped to $360 and $340, respectively, in July 2020.
This benchmark price rate was prevailing in July 2019.
However, the prices became north-bound from the very beginning of this year. And during the last 10 - months (Jan-Oct 2021), the international prices have risen by over 122 percent in propane and over 133 percent in butane.
As a consequence, the 14.2 kg LPG cylinder is now costing Rs 926 in Bhubaneswar; whereas the cost in July 2020 was Rs 621. During the last 16-months (Aug 2020-Nov 2021), the price of 14.2 kg cylinder rose by a massive 49 percent. Odisha has around 89 lakh consumers.
As per the recently released SBI research report, the sharp rise in LPG prices and the cancellation of subsidy, have recorded a sharp drop in refill rate among PMUY beneficiaries. The adverse impact has been, as per the report, the prices of fuelwood, dung cakes and other traditional cooking fuel were up in last 10-months.
Significantly, the PM Ujjwala Yojana was launched to get rid of conventional smoke inducing cooking fuels.
As per Union Petroleum Ministry data, out of the eight crore PMUY beneficiaries, around 4.8 crore consumers have refilled their LPG cylinders at least once in the first quarter of FY2021-22 vis-a-vis 7.91 in FY 2020-21.
In the given backdrop, PM Modi has launched the Ujjwala Yojana 2.0 from poll-bound UP. As per the 2021-22 Budget, an additional 1 cr LPG connections will be given to the poorest sections in the country.
Moreover, in the same budget document, the allocation for LPG subsidy for the year 2021-22 has been fixed at Rs 14,073 cr as against spending of Rs 36,178 cr in 2020-21. The rise in LPG subsidy has been attributed to a sharp rise in connections under the PMUY. And this gas arithmetic drops a big hint.
Given that the subsidy amount allocated for the LPG subsidy has been cut by more than half, there is every likelihood of the Centre cutting down the annual income eligibility limit for LPG subsidy to Rs 5 lakh from Rs 10 lakh (including the income of spouse).
As per an assessment, the Modi government will restore full subsidy to PMUY beneficiaries, but for the non-PMUY consumers ( around 20 crore), an income ceiling of Rs 5 lakh will be taken as eligible for the subsidy, which means a household having a monthly income of (including the income of spouse) Rs 41000 will be eligible to avail LPG subsidy henceforth.