Consumers of subsidised cooking gas may have to pay more for buying domestic LPG cylinders as the government is exploring the option to allow state-run oil companies to raise its price every month to reduce the oil subsidy burden that has almost doubled this month.
Sources said that though quantum of increase in price of subsidised cooking gas has not been worked out, it could be in the range of Rs 4-5 per cylinder per month. This is similar to the practice adopted by state-run oil marketing companies (OMCs) in 2016-2017 of regularly increasing the price of a LPG cylinder by Rs 2 initially and Rs 4 later.
The practice was phased out in October 2017 over stiff opposition to the move and the understanding that it worked contrary to Ujjwala scheme of providing free cooking gas connections to the poor.
"The need for revising the price of domestic cooking gas is stronger this year than ever before as the subsidy per cylinder has doubled with effect from February. If the current price trend holds in FY21, it could jack up the government's LPG subsidy bill from Rs 35,605 crore estimated in the Budget," said an official source privy to the development.
Executives of the oil companies expressed ignorance about any plan to raise LPG cylinder prices at regular intervals from FY21 but said that decisions were taken this year as well to increase cooking gas price in line with changes in the government support per cylinder. Brokerage reports suggest that during July 2019-January 2020, the OMCs increased the price of subsidised LPG by Rs 63 per cylinder at the rate of Rs 9 per month.
Though the quantum increase in gas prices may not pinch the consumers, it would gradually reduce government subsidy provided to them directly into their accounts.
Every household is entitled to 12 cylinders of 14.2 kg each at subsidised rates in a year. Any requirement beyond that is to be purchased at market price. If the decision to raise subsidised LPG prices is taken, the burden will shift even to the 12 cylinders.
The prevailing low demand conditions and resultant low oil prices are expected to act as a cushion to the government from overshooting its oil subsidy bill in FY21. Oil is projected to remain in $55-65 band in FY21. This would keep even product prices under check, thereby keeping the subsidy outgo lower. The situation could also mean that LPG prices may fall in coming months.
If that happens, the government subsidy per cylinder may once again fall, negating any need for a regular revision in cooking gas prices.
Sources said that regular revision may not just be going for monthly increase but it could be quarterly or depending on the actual need as was done in last year as well.
Lower oil and product prices may once again help the government to eliminate oil subsidy that is one of the goals set by the Oil Ministry earlier.
(Subhash Narayan can be contacted at firstname.lastname@example.org)