‘With a Rs. 10 rise per cylinder, subsidy will be nil in 15 months’

State-owned oil marketing companies (OMCs) have steadily increased the prices of domestic subsidised cooking gas prices by Rs. 63 over the last six months to Rs. 557 per cylinder amid a benign oil price environment.

Increasing the price of domestic subsidised liquefied petroleum gas (LPG) cylinder augurs well for the OMCs and will help them to reduce under-recoveries. LPG accounts for the largest share of under-recoveries after diesel prices were freed in 2014.

At the rate of Rs. 10 per cylinder per month, it would hardly take 15 months for the subsidy to become nil, according to an analyst at Motilal Oswal. Deregulating LPG will not only boost the working capital of the OMCs, but will also aid in privatisation of State-owned Bharat Petroleum Corporation Limited (BPCL).

In the first half of FY20, LPG accounted for Rs. 11,300 crore of gross under-recoveries of Rs. 14,000 crore.

The government’s subsidy for LPG under the DBTL (direct benefit transfer for LPG) for 2018-19 stood at Rs. 31,447 crore, accounting for 84% of the total subsidy of Rs. 37,397 crore, according to Petroleum Planning and Analysis Cell (PPAC) data.

The LPG subsidy for 2018-19 jumped by over 50% to Rs. 31,447 crore compared to subsidy of Rs. 20,880 crore in 2017-18.

‘Subsidy won’t go’

“The subsidy under Pradhan Mantri Ujjwala Yojana (PMUY) will not go as the government is providing free cooking gas to the poor. The government is expected to to have over 8 crore such connections by March 2020 of the total 25 crore LPG customers,” said an oil analyst.