Low petro prices, phased rise in LPG rate to bring down subsidy

Analysts say the subsidy burden on both LPG and kerosene is likely to be around ~35,000 crore

Low international petroleum prices, coupled with phased increase in price of both kerosene and liquefied petroleum gas (LPG), are likely to bring relief to the government on the oil subsidy front. Oil marketing companies (OMCS) are passing on the reduction in government subsidy on LPG by increasing prices by ~4 every month.

“Depending on the cost of the cylinder, every month there is a marginal reduction in the subsidy by increase in prices of ~4 a cylinder,” said a senior executive of an OMC.

According to analysts’ estimates, the subsidy burden on both LPG and kerosene is likely to be around ~35,000 crore — of which ~5,000 crore is estimated to be kerosene’s share. The revised government estimates, however, provided for ~33,686 crore this year, part of which has been used for funding rollover of last year ’s subsidy.

In 2018-19, the petroleum subsidy was ~37,397 crore. This was a sharp increase from ~25,552 crore in 2017-18. Brent crude price was up 3.79 per cent at $34.48 a barrel on Friday.

The subsidy is the amount reimbursed by the government to public sector OMCS for selling the product below the market price. “Based on the price of LPG in the global market, the subsidy amount goes up or down. If the prices are low, which should ideally be the case for the next few months, the subsidy will go down,” the official added.

In March, the price of nonsubsidised LPG was cut by ~53 per 14.2kg cylinder from ~858.50 a cylinder to ~805.5 in Delhi because of the fall in international prices.

According to official data, the subsidy borne by the government increased from ~153.86 a cylinder in January to ~291.48 in February. For Pradhan Mantri Ujjwala Yojana (PMUY) consumers, the subsidy borne by the government increased from ~174.86 a cylinder to ~312.48. Simultaneously, prices of subsidised cylinders increased from ~560.14 to ~567.02 a cylinder in February to pass on some of the increase to consumers.

The government subsidises 12 LPG refills a year for those earning less than ~10 lakh annually. Those earning more or using more than 12 cylinders have to pay a non-subsidised price.

“In February, there was a historic hike of ~144.5 based on the international price increase only for non-subsidised cylinders. Which came down in March,” the official added. This was because the international price of LPG in January increased from $448 for a tonne to $567a tonne.

The retail price in March came down to ~534.1 a cylinder. LPG is priced on preceding months’ average of global price.

According to data available with the ministry of petroleum, LPG consumption recorded a growth of 6.1 per cent in January and a cumulative growth of 7.4 per cent so far in financial year 2019-20.

In January, the northern region had the highest share in total LPG consumption of 32.7 per cent followed by the southern region at 26.8 per cent, western region at 22.6 per cent, eastern region at

15.4 per cent and northeastern region at 2.4 per cent. The northeastern region saw the highest growth of 27.5 per cent in total LPG consumption in the month.

In 2018-19, the petroleum subsidy was ~37,397 crore. This was a sharp increase from ~25,552 crore in 2017-18