Govt. LPG subsidy capped at Rs. 20 a kg

The Union government has also decided to resume providing subsidy on cooking gas through direct cash transfers straight into consumers’ bank accounts.

Since the under-recovery for the oil companies as per the new cap will be Rs. 109, will the burden be passed to the consumers? Photo: M.A. Sriram

The Modi government has frozen the budget subsidy for cooking gas at Rs. 20 a kg. This will not mean any increase in price for the consumer right away.

However, if international prices were to rise, as they normally do in winter, then the government will be faced with the choice of either passing on the increase to consumers or asking the oil companies to bear the burden.

“The Cabinet has decided to shift to a fixed budget subsidy for cooking gas which has been frozen at Rs. 20 per kg,” Union Oil Minister Dharmendra Pradhan told

The Hindu . “With the per-kg budget subsidy fixed, I will now push the oil companies to ensure it reaches poor people who need the subsidy more but are unable to afford the bigger cylinders.” “Just like FMCG companies make products like shampoos affordable by pushing sachet-sized sales, we plan to make the cooking gas subsidised cylinders affordable through 5-kg bottles,” the Minister said. Users of smaller cylinders such as migrants, students and labourers will benefit. At present, 5-kg cylinders are not subsidised. The standard subsidised cylinders are 14.2 kg in size.

Source: Oil Ministry; all prices for Delhi

Gas subsidy through direct cash transfers

The Union government has decided to resume providing subsidy on cooking gas through direct cash transfers straight into consumers’ bank accounts so that pilferage can be minimised, Union Oil Minister Dharmendra Pradhan said here on Tuesday.

“This will ensure that the subsidy bill will come down further by about 15 per cent over time … a consumer may or may not use Aadhaar to access the DBT-linked cooking gas subsidy,” he said.

The decision to shift to a per-kg subsidy norm has the added advantage of introducing transparency and predictability to the calculation of the fuel subsidy element of the fiscal deficit.

So far, the burden of the difference between the market price and the subsidised price of cooking gas was borne by the budget and the State-owned oil companies. How much of the cooking gas subsidy was billed to the budget and how much the oil companies had to bear was negotiated between the Finance Ministry and the Oil Ministry.

The budget subsidy of Rs. 20 a kg will remain till March-end, after which it will be reviewed on the basis of the market price of cooking gas. According to a note approved by the Cabinet, against the market price in Delhi for a 14.2-kg cylinder of Rs. 810, the subsidised price is Rs. 417.

At Rs. 20 per kg, the budget subsidy works out to Rs. 284 while the under-recovery for the oil companies will be Rs. 109.