The price of subsidised domestic LPG increased by more than ₹100 between November 2020 and February 2021 across many metros in India. The increase was mainly due to a drastic fall in the LPG subsidy amount that was being directly transferred to consumers’ accounts since 2015. Before the recent spike in prices, the government had been steadily increasing the price of subsidised cylinders over the last two years, thereby reducing the subsidy amount, despite a drastic fall in international LPG cost after FY14.
Subsidy at ₹0
Since May 2020, no subsidy has been declared by the government for domestic cylinders in Delhi. Following a sharp rise in non-subsidised LPG price, consumers have been paying at the higher market rates, which in February 2021 averaged at ₹719 per 14.2 kg cylinder in Delhi.
Over 70%* of the LPG retail price in Delhi is determined by the international Free On Board (FOB) price of LPG. FOB is a weighted average of Saudi Aramco contract price for Butane (60%) and Propane (40%). Apart from base price, factors like import charges, bottling charges, freight, delivery charges, GST, distributor commission, determine the price of LPG.
Fall of FOB
The international FOB price of LPG fell drastically from around $880 per metric tonne (MT) in FY14 to $394/MT in FY16. It again fell in FY21 to $382/MT. These are average prices for respective years.
The Pradhan Mantri Ujjwala Yojana (PMUY) was instituted to provide concessional LPG connections to rural BPL families. However, even when LPG prices were relatively lower, a significant share of beneficiaries preferred to use traditional solid fuels. With the recent price increase, LPG usage may drop further.
A December 2019 CAG report said many beneficiaries did not use the service after the initial refill. Over 35% reverted to traditional fuels mainly due to the higher price of LPG refills
A study by RICE institute in 2018 in rural parts of Bihar, M.P., Rajasthan and U.P. found similar results. While LPG coverage increased by 44% points compared to 2014, 73% of households having both LPG connections and traditional fuels used solid fuels the day before the survey
Source: PPAC, IOCL, *Based on latest PPAC build-up available