Govt eliminates cooking gas subsidy as Covid turns oil market favourable

The government has completely eliminated the need to provide subsidy on domestic cooking gas as the global fall in oil prices and frequent rise in LPG gas cylinder price has brought the price of the common man's fuel closer to market rates.

As of September 1, the price of non-subsidised and subsidised 14.2 kg cooking gas is identical at Rs 594 a cylinder. What this means is that government would no longer need to pay subsidy under the direct benefit transfer scheme (DBT) into the account of beneficiaries.

In fact, with the price gap between the subsidised and non-subsidised cooking gas narrowing since early this fiscal, the government has not made a any cash transfers into the accounts of beneficiaries for the last four months.

With the development, the government could easily make a saving of over Rs 20,000 crore in FY21 towards LPG subsidy. This would be huge given the pressure on the government to step up expenditure for Covid-19 relief schemes.

The government has allocated Rs 40,915 crore as petroleum subsidy for FY21, a 6 per cent increase from Rs 38,569 crore allocated for the last fiscal. Out of this,the allocation for LPG subsidy has been increased to Rs 37,256.21 crore for the current year. But so far in the first quarter period, the government had to draw just about Rs 1,900 crore from the subsidy provisions.

While global oil markets are largely responsible for the fall in the prices of all petroleum products, but oil companies also raised the price of subsidised cooking gas consistently from a level of Rs 494.35 a cylinder in July last year to Rs 594 now. Had this increase not taken place, the 14.2 kg domestic LPG cylinder price would have been more than Rs 100 cheaper.

According to an analysis done by Emkay Global, oil companies' under recovery in case of kerosene has come to a naught since March while that for LPG  has become zero from May.

India has about 27.76 crore LPG consumers. Of these, around 1.5 crore are not eligible to get LPG subsidy since December 2016 because they have an annual taxable income above Rs 10 lakh.

This leaves some 26.12 crore consumers who were eligible to get the subsidy relief under the DBT scheme. Out of this lot as well, with the latest developments 18 crore are not receiving any subsidy.

The government is now focusing on providing relief only to the poor and an amount of Rs 9709.86 crore has been transfered into the accounts of about 8 crore such beneficiaries who are to take three free LPG cylinders during the Covid pandemic.

The good news is that with the developments in the past few months, the government had completely eliminated oil subsidy and is spending the savings on other welfare activities. But this could mean that if there is any spike in LPG prices hereon, the government may pass on a portion of the burden to consumers by raising LPG prices.