Thursday, February 29, 2024

Mint Explainer: LPG price trend, impact on consumers and steps to curb the rise

Domestic oil marketing companies have been raising prices of liquified petroleum gas (LPG), or cooking gas, intermittently, amid a surge in global gas prices after the Ukraine war.

However, since the majority of Indian population relies on LPG, it comprises a major part of a household budget making it a politically sensitive commodity. As a result, the price rise of a 14-kg LPG cylinder has not seen an increase in line with global prices. 

Recently, the ministry of petroleum and natural gas, in a response to question on rise in gas prices, outlined the price tend and factors thereof.

Mint breaks this down:

What is the reason for the rise in LPG prices?

India imports more than 60% of its domestic LPG consumption requirement. Prices of LPG in the country are based on Saudi Contract Price (CP), the benchmark for international prices of LPG. In its response to the question in Parliament, the petroleum ministry said that during 2020-21 to 2022-23, the average Saudi CP went up from $415 per MT (metric tonne) to $712 per MT. The ministry, however, said that the increase in international prices was not fully passed on to retail consumers. Government data showed that during the period under review, LPG prices in the national capital rose by 359 from 744 to 1,103 per cylinder.

What were the steps taken by the government to mitigate the impact of rising gas prices?

As the increase in international prices were not fully passed on to consumers, oil marketing companies (OMC) suffered under-recoveries of around 28,000 crore on sale of domestic LPG. To compensate this, the government approved a one-time compensation of 22,000 crore to OMCs in FY23. Further, during the Covid-19 pandemic, the Centre also provided about 14.17 crore free LPG refills to Pradhan Mantri Ujjwala Yojana (PMUY) households under Pradhan Mantri Gareeb Kalyan package during 2020. Also, effective 21 May 2022, the central government started a targeted subsidy of 200 per cylinder for PMUY beneficiaries for up to 12 refills a year for years 2022-23 and 2023-24.

How much does LPG currently cost?

Currently, the price of domestic cooking gas stands at 1,103 per 14kg cylinder, compared to 1,053 in July last year, according to the government’s data provided in the Parliament. For PMUY consumers, the effective price currently is 903 following the targeted subsidy of 200 per cylinder. Under the Direct Benefit Transfer for LPG (DBTL) scheme, the subsidy, as admissible, is credited to the bank accounts of eligible beneficiaries.

How many households in India have LPG connections?

As per the Petroleum Planning and Analysis Cell (PPAC), at the end of the FY23, there were 31.4 crore ‘domestic LPG’ connections, including 9.59 crore PMUY connections. In FY23, LPG consumption in the country touched a new record of 28.5 million metric tonne, with a 0.9% year-on-year growth.

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