Cooking gas subsidy may bloat as global prices rise

While petrol and diesel prices have risen to historic highs, it is the price of cooking gas that is likely to be a bigger cause of concern for the government and its three oil marketing companies (OMCs).

Experts believe for 2018-19, with global prices moving to a higher range, the government subsidy for liquefied petroleum gas (LPG) is likely to be at least ~110 billion higher than the budgeted ~217 billion.

Since product prices are benchmarked to their respective global indices, the OMCs have decreased the price of a non-subsidised LPG cylinder by ~35.50 to ~653.50, as against ~689 on March 1. They, however, cut the price of a subsidised one by ~1.74 to ~491.35 in Delhi on April 1, indicating an increase in the subsidy.

For the first nine months of 2017-18 (the year ended March 31), the subsidy outgo was ~141.7 billion, as compared to ~121.3 billion for all of 2016-17.

The price of a subsidised gas cylinder rose ~50.45 over the past year — it was ~440.9 on April 1, 2017, and is now ~491.35. In the same period, the price of a non-subsidised cylinder declined by ~69.50. In the month of March, the government was providing a subsidy of ~195.91 a cylinder. This subsidy is available for 12 gas cylinders in a year and to those earning less than ~1 million annually.

The Indian basket of crude oil’s price has risen 37 per cent in the past 10 months, from a monthly average of $52.49 in April 2017 to $63.80 a barrel last month. “Our prices are linked to the international markets and the recent hike in global prices has an impact on our petrol, diesel and LPG prices. Hence, we want the Goods and Services Tax Council to include all petro products under this tax, so that we have a uniform price across the country,” petroleum minister Dharmendra Pradhan said on Monday.

While the Centre had raised the excise duty on petrol and diesel when prices were low, it cut this only once, by ~2 a litre in October 2017. It has been resisting any other cut in the duty, though Pradhan said states should review their rates.

Petrol prices in Mumbai have crossed ~81 a litre. On Monday, it was ~73.83, ~76.54, ~81.69 and ~76.59, respectively, in Delhi, Kolkata, Mumbai and Chennai. Diesel is now ~64.69 a litre in Delhi, ~67.38 in Kolkata, ~68.89 in Mumbai and ~68.24 in Chennai.

“The hike in prices is going to affect the LPG subsidy and is likely to overshoot the government expectation of ~217 billion for 2018-19. At an average global price (of crude oil) of $65 a barrel, the subsidy burden for the year is likely to be in the range of around ~330 billion. If the government is not ready to bear it, the additional subsidy burden will have to be raised from upstream or downstream companies,” said K Ravichandran, senior vice-president at ratings agency ICRA.

On Monday, the price of Brent crude was $69.66 a barrel; West Texas Crude was $65.09. The Indian basket of crude, a composite derivation of the Oman and Dubai average, and of Brent, was at $65.97 a barrel.