Govt wants to end LPG subsidy by March

The government on Monday said it has asked the oil marketing companies (OMCs) to raise the prices of subsidised cooking gas (LPG) by Rs 4 per cylinder every month.

The Centre wants to bring subsidies on cylinders to nil level by March next year.

This was stated by Petroleum Minister Dharmendra Pradhan in a written reply in the Lok Sabha.

However, he did not make it clear as to what the government plans to do when there is a sharp spike in global crude prices. At present, the government gives a subsidy of a little above Rs 58 on a domestic subsidised LPG cylinder and around Rs 28 is borne by the oil marketing companies.

“The government vide its order dated May 30, 2017, has again authorised PSU oil marketing companies to continue to increase the effective price of subsidised domestic LPG by Rs 4 per cylinder effective June 1, 2017, per month (excluding VAT) till the reduction of government subsidy to ‘nil’, or till March 2018, or till further orders, whichever is earliest,” the minister said.

Earlier, public sector OMCs — Indian Oil (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) — were authorised to increase price of subsidised domestic LPG cylinder by Rs 2 per cylinder (14.2-kg) per month (excluding VAT) with effect from July 1, 2016,” he said.

The price for other subsidised cylinders such as those sealed in 5-kg bottles would be increased proportionately by OMCs, Pradhan said.

Post the government order, the OMCs raised LPG prices twice. The last one was on July 1. The hike was a six-year high of Rs 32 per cylinder. The hike also included increased taxes under the new Goods and Services Tax (GST) regime.

In the pre-GST regime, separate excise and sales tax were levied on goods coming out of factory gate. That time, LPG attracted a zero or nil excise duty all over the country. However, post GST, a 5% tax was levied on subsidised LPG.

In the current system, every household gets LPG cylinders at market price. The government subsequently transfers the subsidy amount, which is currently around Rs 86 per cylinder, through direct benefit transfer to beneficiaries’ bank accounts.

Experts said if the subsidy era comes to an end, the government will not need to transfer any money to any account and everyone will have to buy the refills on market rate. However, there are times when the market rates have gone as high as close to Rs 740 per bottle.