Commodities

Oil Marketing Companies made lower LPG subsidy pay-out

Kuwar Singh New Delhi | Updated on April 10, 2021

Budget has already lowered subsidy provision

Oil marketing companies (OMCs) such as Indian Oil and Bharat Petroleum disbursed lower amounts towards LPG subsidy during the just concluded financial year. This is going by the information — on subsidy payouts by the OMCs — furnished by the Petroleum and Natural Gas Ministry to a Right to Information (RTI) Act query posed by this reporter.

According to the information provided by the Ministry, in the first ten months of the financial year 2020-21, Indian Oil Corporation Ltd. released ₹3,008.44 crore as subsidy to its customers of domestic LPG cylinders. In contrast, the firm had disbursed ₹13,048.41 crore and ₹18,662.81 crore as the LPG subsidy in the financial years 2019-20 and 2018-19, respectively.

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“The government continues to modulate the effective price to consumer for subsidised domestic LPG,” Minister for Petroleum and Natural Gas Dharmendra Pradhan told parliament in a written reply in March. The government calculates the subsidy on domestic LPG differently for different regions. The subsidy is transferred to consumers by the three public-sector oil marketing companies that sell LPG cylinders.

These subsidy transfers have plunged since the Coronavirus outbreak. In the first eleven months of the financial year 2020-21, Bharat Petroleum Corporation Ltd. disbursed ₹3,629.6 crore as the LPG subsidy. In contrast, the firm’s annual subsidy payments for the financial years 2019-20 and 2018-19 stood at ₹6,338.7 crore and ₹9,327.4 crore, respectively.

“The government has essentially not been providing subsidy for a few months now,” said Abhishek Jain, Senior Programme Lead at the Council on Energy, Environment and Water. “It began with Covid-19 in March. International crude oil prices fell so much that no subsidy was required. The subsidy did not come back when oil prices began rising again.”

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“The government wants to completely do away with the subsidy. But they should focus on better targeting of the subsidy instead,” said Vibhuti Garg, Energy Economist and Lead India at the Institute for Energy Economics & Financial Analysis.

The halt on subsidy payments as a result has coincided with a spike in LPG prices. A 14.2kg domestic cylinder in Delhi is now priced at ₹809, ₹215 higher than in November last year. However, at 25.34 million tonnes in the first eleven months of the financial year 2020-21, LPG consumption has crossed pre-Covid levels.

The number of LPG consumers in India has also been rising steadily over the past five years. In March 2016, Indian Oil had 8.1 crore domestic LPG customers. This February, its LPG consumer base reached 13.53 crore. A large number of the additions are the beneficiaries of the Pradhan Mantri Ujjwala Yojana, the scheme launched in May 2016 under which the Central government also waives the price of the first cylinder purchased by a new customer.

However, the non-Ujjwala consumer base has continued to rise even as their subsidy has fallen. In the first eleven months of the financial year 2020-21, Hindustan Petroleum Corporation Ltd. disbursed ₹1,153 crore in LPG subsidy to its non-Ujjwala consumers, who numbered 5.76 crore at the end of February. In contrast, the firm had disbursed ₹5,386 crore and ₹8,319 crore as LPG subsidy for non-Ujjwala customers during the financial years 2019-20 and 2018-19, respectively, even though this consumer base had been smaller back then.

The government has already lowered the allocation for LPG subsidy in the budget. Expectation is that it will go down further.

Table

Total LPG Subsidy (In ₹ Crore)

Year

Amount

2019-20 (Actual)

34,085.86

2020-21 (Budget Estimate)

37,256.21

2020-21 (Revised Estimate)

36,072.47

2021-22 (Budget Estimate)

14,073.35

Source: Union Budget

Published on April 09, 2021

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