Issues with LPG Subsidies

Background:

  • Subsidised LPG prices have increased by a massive 50% in this financial year alone. This would have a significant impact on the government’s flagship scheme, the Pradhan Mantri Ujjwala Yojana (PMUY).
  • Since 2016, PMUY has provided LPG connections to 80 million poor house holds to reduce women’s drudgery and indoor air pollution. Providing an upfront connection subsidy of ₹1,600, PMUY helped expand LPG coverage to more than 85% of households.

Challenges

  • Large-scale primary surveys by the Council on Energy, Environment and Water (CEEW)suggest that, on average, recent PMUY beneficiaries consumed only about half the LPG compared to long-standing regular consumers. Limited uptake of LPG among poor households has two main reasons.
  1. First, the effective price of LPG is not affordable for such households, despite the subsidy.
  2. Second, many rural consumers have access to freely available biomass, making it difficult for LPG to displace it.
  • Beyond causing indoor air pollution, biomass use for cooking contributes up to 30% to the ambient PM2.5at the national level, more than the contribution of transport, crop residue or coal burning.
  • The recent increases in the subsidised LPG price have made it more difficult for the poor to sustain LPG use.
  • As the pandemic set in, the LPG subsidised price began to rise, even when global LPG prices plummeted.
  • Now with LPG prices rising globally, a 50% reduction in the LPG subsidy budget for FY22 (versus FY21) does not bode well.
  • The information about LPG price build-up and subsidy has become more difficult to obtain in recent years.

Way forward

  • The central government tread should balance between LPG subsidies and sustained clean fuel consumption in poorer households by better targeting of subsidy.
  • One approach for such targeting is to rely on the existing LPG consumption patterns of consumers.
  • Provide households exhibiting low consumption or a decline in LPG consumption over time with greater subsidy per cylinder to sustain health gains. Further, the subsidy levels could be dynamic with different slabs reflecting the previous year’s consumption.
  • Alongside, the de-duplication efforts must continue to avoid subsidy leakages.
  • In the post-pandemic rebuilding, the continued support to the economically poor for sustaining LPG use is not merely a fiscal subsidy but also a social investment to free-up women’s productive time and reduce India’s public health burden.