News In Brief Government Policies
News In Brief Government Policies

LPG Subsidy To Be Restored From Next Year

Share Us

450
LPG Subsidy To Be Restored From Next Year
26 Jul 2022
6 min read

News Synopsis

Following the close removal of the budgetary subsidies on liquefied Petroleum Gas (LPG) during Financial Year 2022 the Union government might have to pay a substantial amount to this end in FY 2023.

While the subsidy has not been transferred to the accounts of the households that receive cook gas subsidies since June 2020, a lack of transfer of the cost to the consumer has increased the state-owned oil marketing companies and their under-recoveries in this case. In addition, the reinstatement of LPG subsidy under the Ujjwala Yojana which is designed for people who are low-income at a cost of Rs 200 per cylinder in May 2022 is estimated to cost about 6100 crore during FY23.The Ministry of Petroleum has been reported to have announced an amount of approximately $40,000 to pay for LPG under-recoveries for OMCs during the second half of FY22 and the current fiscal year, in light of the increased prices for oil and LPG prices. Nomura has calculated OMCs' under-recoveries on LPG in the first quarter of FY23 at the sum of Rs 9,900 crore. In H2 of the year, the under-recoveries reached a figure of 6,500-7,000 crore.

In the Budget for FY23 in the FY23 Budget, the Centre provided 5800 crore rupees to provide LPG subsidies, which includes the direct transfer of benefits worth Rs. 4,000 crore to domestic usage and an additional 800 crore for those who are poor in the Ujjwala scheme.

"The budget allocation for FY23 isn't enough. More allocations will be needed but they may not be as large as the Rs 40 million crore (as estimates by the Petroleum Ministry)," an official informed.

Budgetary LPG subsidy fell from an amount of Rs 24,172 crore during FY20 and then dropped to 11,896 crore by FY21. The subsidy was only Rs 241 crore during FY22. Given that other fuels, including petrol and diesel, are decontrolled, the Centre's Budget was almost completely freed from the burden of fuel subsidy in FY22, marking an end to a sticky and politically-sensitive item of revenue expenditure it struggled long to get rid of. Since June 2020 the subsidies for domestic LPG are restricted to a small amount of freight subsidies to remote regions.

The current price of the domestic LPG is $1053 for a 14.2 kilogram cylinder. The price has increased by 11 percent since April 2022 and 78 percent since June 2020. "We believe that OMCs had been able to stop racking up under-recoveries on domestic LPG since July 2022 thanks to the drastic adjustment of international LPG prices in the past few months, as well as the recent price increase of Rs 50/cylinder for the domestic LPG," Nomura declared.

A decrease in the global price of crude oil (hence globally-based LPG price) between April and May of 2020 allowed the government to end this LPG subsidy. Consumers who were paying for the subsidy were not feeling the pinch until November 2020 due to the tepid worldwide LPG prices. Since then, the price has increased, the government did not restore the subsidy. The decision to stop the subsidy was then taken and was implemented without an public announcement.

You May Like

TWN In-Focus