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2-min read

LPG Subsidy Jumps 60% in Last Two Months, NITI Aayog Says it Creates Distortion

The NITI Aayog has suggested to the Ministry of Petroleum and Natural Gas that eligible beneficiaries receiving subsidy on liquefied petroleum gas (LPG) should rather be given a ‘cooking subsidy’ through direct benefit transfer (DBT).

PTI

Updated:July 13, 2018, 7:28 AM IST
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LPG Subsidy Jumps 60% in Last Two Months, NITI Aayog Says it Creates Distortion
Representative image: Reuters
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New Delhi: Cooking gas (LPG) subsidy has jumped by over 60 per cent in last two months as the government maintains price line despite rising international rates, Indian Oil Corp (IOC) Chairman Sanjiv Singh said.

All LPG consumers have to buy fuel at market price. The government, however, subsidises 12 cylinders of 14.2-kg each per households in a year by providing the subsidy amount directly in bank accounts of users.

"Subsidy amount (transferred in bank accounts) was Rs 159.29 per cylinder in May and it was raised to Rs 204.95 in June and to Rs 257.74 per cylinder this month," he said. The higher subsidy was meant to keep rates of subsidised LPG in check, Singh added.

Meanwhile, the NITI Aayog has suggested to the Ministry of Petroleum and Natural Gas that eligible beneficiaries receiving subsidy on liquefied petroleum gas (LPG) should rather be given a ‘cooking subsidy’ through direct benefit transfer (DBT). It said that in a note to the ministry that the ‘subsidy’ attached to LPG is creating distortions in adopting cleaner forms of fuel.

International rates of LPG, which was used as a benchmark for pricing of domestic fuel, have been on the run since June. Non-subsidised or market priced LPG price was Rs 653.50 per 14.2-kg bottle in the national capital in May, which rose to Rs 698.50 (Rs 48 pr cylinder) in June. This month price has further risen by Rs 55.50 to Rs 754 in Delhi.

Non-subsidised LPG is the one that consumers buy after exhausting their quota of below market rate fuel. It is also bought by those who have voluntarily given up subsidy and by commercial establishments.

"While LPG prices have shot up, subsidised LPG rates havent," Singh said, adding that only the minor tax part has been passed on to consumers.

As per tax rules, GST on LPG has to be calculated at market rate of the fuel. The government may choose to subsidise a part of the price but tax will have to be paid at market rates.

This has meant that GST is calculated every month on the rate at which domestic non-subidised LPG is priced. With rates on the rise, the tax has also risen, resulting in a minor increase in rates for subsidised users, he said.

Subsidised LPG was priced at Rs 491.21 per cylinder in May, which rose to Rs 493.55 in June and Rs 496.26 this month, Singh noted.

"The increase is mainly on account of GST on the revised price of Domestic Non-Subsidised LPG," he said.

As a result of higher global rates, the price of non-subsidised LPG in Delhi will increase by Rs 55.50 per cylinder.

"The balance Rs 52.79 (Rs 55.50 minus Rs 2.71) is being compensated to the customer by an increase in subsidy transfer to their bank account. Accordingly, the subsidy transfer in the customer's bank account has been increased to Rs 257.74 per cylinder in July as against Rs 204.95 per cylinder in June. Thus the domestic LPG customer is protected against the increase in international prices of LPG," he said.

Oil firms revise LPG price on 1st of every month based on average benchmark rate and foreign exchange rate in the previous month.

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