Petroleum product subsidies fall 92 percent as govt withholds transfers to LPG scheme beneficiaries

Transfer of LPG subsidy was stopped in May 2020 when petroleum prices tanked.

The subsidy on petroleum products plunged 92 percent in April-July 2021 from a year ago, as the government withheld the transfer of subsidies on liquefied petroleum gas (LPG) cylinders to millions of beneficiaries despite a sharp increase in the prices of the cooking fuel.

Petroleum subsidy for the first four months of 2021-22 was estimated at Rs 1,233 crore provisionally, down from Rs 16,461 crore in the corresponding period of 2020-21 when poor households were given three free refills.

Subsidy on petroleum products, chiefly LPG, is one of the four major subsidies charged to the Union budget. Others are food, fertilisers and urea.

Data published by the Controller General of Accounts (CGA) shows that the spending on these four subsidies was Rs 1,20,069 crore during April-July 2021. The share of petroleum subsidies in this expenditure was just 1 percent.

The LPG factor

Transfer of LPG subsidies into bank accounts of the beneficiaries was stopped in May 2020 when petroleum prices fell to multi-year lows amid a collapse in demand worldwide as the coranavirus outbreak forced nations to lock down. Prices of non-subsidised LPG cylinders fell to the level of subsidised ones, erasing the need for subsidies.

In Delhi, they fell from Rs 858 in February 2020 to Rs 582 in May, which was about the same level as the price of a subsidised cylinder of LPG. The prices of LPG cylinders rose marginally to Rs 594 in June and remained at that level till December 1, when they were raised by Rs 50 a cylinder. Another increase of Rs 50 was implemented on December 15, taking the price of a refill above the subsidised rate.

Between December 1, 2020 and March 1, 2021 prices of 14.2 kg LPG cylinders rose by Rs 225, with a sharp Rs 100 increase each in December and February. The rise in prices in the first four months of the current fiscal year was moderate, rising about Rs 25 per 14.2 kg cylinder.

There was only one cut in the price of LPG since it started to climb–a Rs 10 decline on April 1, 2021. By July 1, 2021, the price of a cylinder was Rs 240 more than it was a year ago. For households in Delhi, that translated to a 40 percent year-on-year increase to Rs 834.50 a cylinder.

LPG prices rose by similar amounts across the country but the final price paid by households varied across states due to local taxes. For instance, an LPG cylinder cost almost Rs 100 more in Patna than in Delhi.

The rise has continued, and a cylinder now costs Rs 884.50 in Delhi, which is Rs 26 more than the price paid by households for a non-subsidised cylinder in February 2020. Beneficiary households were receiving a subsidy of Rs 290 per cylinder at that point.

Expenses rise nonetheless

Despite the sharp fall in petroleum subsidies, the expenditure on four major subsidies grew 15 percent as food subsidies ballooned 62 percent during April-July 2021, CGA data shows.

A part of the rise in food subsidy was due to the relaunch of Pradhan Mantri Garib Kalyan Anna Yojna to provide free food grain to about 80 crore individuals from vulnerable households when the second wave of Covid19 pandemic forced localised lockdowns. The increase could be partly due to the clearing of the outstandings of the Food Corporation of India.

The CGA data show that the total expenditure on major subsidies for April-July 2021, excluding the spending on food, was 41 percent lower than a year ago.

Food subsidies at Rs 92,204 crore during April-July 2021 accounted for 77 percent of the Rs 1,20,069 crore spent on subsidies.

Fertiliser and urea subsidies accounted for 22 percent of the expenditure on major subsidies, while the share of petroleum subsidies was just 1 percent.

The share of petroleum product subsidies has fallen from 15.7 percent of the spend on major subsidies in April-July 2020. The expenditure on four major subsidies was around Rs 1,04,638 crore in the first four months of the last fiscal year, with the amount spent to subsidise LPG and kerosene at Rs 16,461 crore.

A significant portion of the subsidy was transferred under the Pradhan Mantri Garib Kalyan Yojna to the beneficiaries of the Pradhan Mantri Ujjwala Scheme last year. A government statement last year said that Rs 9,710 crore had been transferred to the beneficiaries between April and June of 2020.  No such assistance was provided in this fiscal year when the second wave of Covid19 infection ravaged the country.