LPG subsidy may be back in FY23

LPG subsidy may be back in FY23

After the near elimination of the budgetary subsidy on liquefied petroleum gas (LPG) in FY22, the Union government may have to provide a tidy sum for this purpose in FY23.

Even though no subsidy has been transferred to the bank accounts of households as cooking gas subsidy since June 2020, an incomplete pass-through of costs to consumers has inflated the state-run oil marketing companies’ under-recoveries on this count. Also, the re-introduction of LPG subsidy under the Ujjwala Yojana, which is meant for low-income people at the rate of Rs 200/cylinder, in May 2022 is seen to cost Rs 6,100 crore in FY23.

In the FY23 Budget, the Centre made a provision of Rs 5,800 crore for LPG subsidies, including direct benefit transfer of Rs 4,000 crore for domestic use and another Rs 800 crore for the poor under the Ujjwala scheme.

“The Budget allocation for FY23 is insufficient. Additional allocations will be required, but it may not be as high as Rs 40,000 crore (as estimated by the petroleum ministry),” an official told FE.

Budgetary LPG subsidy came down from Rs 24,172 crore in FY20 to Rs 11,896 crore in FY21. The subsidy was just Rs 241 crore in FY22. Given that other fuels, including petrol and diesel, are decontrolled, the Centre’s Budget was almost completely freed from the burden of fuel subsidy in FY22, marking an end to a sticky and politically-sensitive item of revenue expenditure it struggled long to get rid of.

Since June 2020, the subsidies on domestic LPG have been limited to small amounts of freight subsidies for far-flung regions.

The current prices of domestic LPG is Rs 1,053 per 14.2 kg cylinder. The price has risen 11% since April 2022 and 78% since June 2020.

“We think OMCs have stopped incurring under-recoveries on domestic LPG from July 2022, with the sharp correction in international LPG prices over the past few months and the recent price hike of Rs 50/cylinder on domestic LPG,” Nomura said.

A drop in global crude oil prices (hence the global LPG product prices) in April-May 2020 allowed the government to withdraw the LPG subsidy. The end- consumers had not felt the pinch till November 2020 thanks to muted global LPG prices. As the prices have since risen, the government did not reinstate the subsidy. The decision to end the subsidy was taken and implemented without any official announcement.