Politics
Mint Explainer: Why the government cut LPG prices by ₹200
Summary
- The move comes in the backdrop of high inflation and also at a time when the government is gearing up for assembly elections in five states as well as general elections next year
The Union cabinet on Tuesday approved a reduction ₹200 on domestic liquified petroleum gas (LPG) cylinders or cooking gas. The move comes in the backdrop of high inflation and also at a time when the government is gearing up for assembly elections in five states as well as general elections next year. Here's a look at the factors behind the decision and its likely impact.
Why did the government reduce LPG prices?
The price cut has been announced in a bid to tame inflation in the country. Retail inflation in July reached 7.44% from 4.87% in June, with consumers facing a sharp 11.5% spike in food prices. This is the fastest pace of retail inflation since April 2022 and the first time since September 2022 that it has scaled 7%. Inflation in the fuel and light segment increased 3.67% on a year-on-year basis. Further, the decision also comes ahead of key assembly elections in five states and general elections in 2024. Cooking gas is a politically sensitive commodity given its impact on household budgets.
What are the prices across cities post the reduction?
In the national capital, the 14.2-kg domestic LPG cylinder was priced at ₹903 on Wednesday, down from ₹1,103 on Tuesday. Similarly, domestic LPG prices in Kolkata, Mumbai and Chennai stood at ₹929, ₹902.50 and ₹918.50, respectively, after the price cut. The price cut is also applicable for subsidized cylinders under the Pradhan Mantri Ujjwala Yojana (PMUY) scheme. These cylinders already get a subsidy of ₹200. For beneficiaries of PMUY, the price now is ₹703 in the national capital.
What has been the trend in LPG prices?
Domestic oil marketing companies (OMCs) have been raising prices of LPG, or cooking gas, intermittently, amid a surge in global gas prices after the Ukraine war. However, since the majority of Indian population relies on LPG, it comprises a major part of a household budget, making it a politically sensitive commodity. As a result, the price rise of a 14-kg LPG cylinder has not seen an increase in line with global prices. In a recent response in Parliament, the union petroleum ministry said that the increase in international prices was not fully passed on to retail consumers. Government data showed that during the period under review, LPG prices in the national capital rose by ₹359 from ₹744 to ₹1,103 per cylinder in the national capital.
What the other steps taken by the government to mitigate the impact of rising gas prices?
On Tuesday, the cabinet also decided to provide 7.5 million new LPG connections for free under the Ujjwala scheme. Further, as the increase in international prices has not been fully passed on to consumers, OMCs suffered under-recoveries of around ₹28,000 crore on sales of domestic LPG. To compensate this, the government approved a one-time compensation of ₹22,000 crore to OMCs in FY23. Further, during the Covid-19 pandemic, the Centre had also provided about 14.17 crore free LPG refills to Pradhan Mantri Ujjwala Yojana (PMUY) households under Pradhan Mantri Gareeb Kalyan package during 2020. Also, effective 21 May 2022, the Central government started a targeted subsidy of ₹200 per cylinder for PMUY beneficiaries for up to 12 refills a year for 2022-23 and 2023-24.
