LPG price: Too steep a hike

LPG price: Too steep a hike

The increase in cooking gas prices for customers who do not avail subsidy is steep by any stretch of imagination. There’s no justifiable explanation for hiking LPG price by a whopping Rs 140-150 per cylinder in one go. Kolkata consumers will have to pay through their nose at Rs 896 per cylinder; those in Mumbai will pay Rs 829.50, Chennai residents Rs 881, Delhiites Rs 858.40 and Bengalureans Rs 861.50 per cylinder. Even for those availing of the subsidy, cooking gas will burn a hole in the pocket if they consume beyond the regulation 12 cylinders a year. This is the sixth upward revision in cooking gas price in as many months. The incidence of Goods and Services Tax (GST) that varies with the prices, international crude prices and rupee value in foreign exchange markets are cited as three key factors for what’s now become a regular upward revision in LPG prices.

The monthly increase in prices for both subsidised and non-subsidised LPG consumers may be inevitable as the government seeks to pursue pricing reforms in petroleum and oil products. It will eventually lead to all consumers paying the market price for what they buy. If the present trend in price hikes continues, by 2022 or even a bit earlier, cooking gas subsidies will have been fully phased out as even those availing of the subsidy are subject, by design, to a monthly price hike of about Rs 10 per cylinder. For 2019-20, Finance Minister Nirmala Sitharaman had set aside Rs 33,700 crore toward fuel subsidies. For 2020-21, she has allocated Rs 27,500 crore, thereby indicating that the subsidy bill will slide. Given this, LPG consumers are unlikely to benefit from the subdued international crude prices in the wake of the spread of the coronavirus in recent weeks.

Pricing reforms in fuel products are necessary. But so is structuring these reforms to make the transition least painful for consumers. Staggering out the increase in cooking gas prices over the next 2-3 years would be a better option, especially given the rampant job losses and non-availability of fresh opportunities in the marketplace. Also, salary hikes are non-existent or muted these days and hence, any increase in kitchen budgets will hurt households. This is especially so for lower middle-income consumers who are already facing a rise in vegetable prices, which has pushed food inflation up to around 7.86%. Middle-class voters, the mainstay of the BJP’s urban base, may accept modest price revisions, but not large hikes such as the one effected this week. Balancing macroeconomic numbers cannot be the sole objective of price revisions, especially when consumption demand is so muted as it is now.

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