The Subsidy Cut and Its Immediate Impact
The government has recently announced a significant reduction in the number of subsidised LPG cylinders available to beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY). The number of subsidised cylinders has been decreased from nine to four per annum. This decision comes on the heels of a recent increase in cooking gas prices by Rs 29 per cylinder, the second such hike in three months.
Despite the reduction, existing beneficiaries will continue to receive a subsidy of Rs 300 per cylinder through Direct Benefit Transfer (DBT). However, this subsidy will now apply only to the first four refills per year, effectively reducing the total annual household subsidy from Rs 2,700 to Rs 1,200. This change has raised concerns about the affordability of clean cooking fuel for economically weaker sections of society.
Why It Matters
The reduction in subsidised LPG cylinders directly impacts the financial burden on low-income households, particularly those in rural areas who have transitioned from traditional fuels like firewood, coal, and cow-dung cakes to LPG under the Ujjwala scheme. While many families may still fall within the four-cylinder limit and thus see little change in their actual subsidy receipts, larger households that consume more LPG will face a substantial increase in their annual fuel costs.
The timing of this decision is also significant, as it follows two increases in LPG prices within three months. The first hike was in March, with a Rs 60 increase, and the second in June, with a Rs 29 increase. These price hikes, coupled with the subsidy reduction, place additional financial strain on low-income families.
Government Rationale and Future Steps
Officials have attributed the decision to a change in the consumption patterns of PMUY beneficiaries and the rising global LPG rates. According to officials, the average household under the PMUY consumes about four LPG cylinders annually. The government aims to align subsidy support with actual usage rather than providing subsidies for refills that many households may not purchase.
International LPG prices have seen a sharp increase, with the Saudi Contract Price (CP), a key global benchmark for LPG pricing, rising by about 46% since February. The actual cost of supplying a domestic LPG cylinder has now exceeded Rs 1,600, while consumers are paying significantly lower prices. Oil marketing companies are reportedly facing an under-recovery of almost Rs 700 per domestic cylinder.
What Happens Next
Beneficiaries of the PMUY will continue to receive LPG cylinders at lower rates than regular consumers, even with the reduced subsidy support. Currently, a PMUY beneficiary pays an effective price of around Rs 642 for a 14.2-kg cylinder after subsidy, whereas a general consumer in Delhi pays about Rs 942. However, beneficiaries will have to pay the market price for any refills beyond the first four subsidised cylinders in a year.
For households using more than four cylinders a year, the financial impact could be substantial. The government's decision to reduce the subsidy is expected to control the subsidy burden due to high global prices of LPG. However, it remains to be seen how this will affect the usage patterns and financial stability of low-income households in the long run.
Source: NewsX.
