New LPG connections rise at the fastest clip in two decades

By: | Updated: December 31, 2015 9:43 AM

Despite steps taken by the government to restrict LPG subsidy to the needy, the consumer base for cooking gas expanded by a solid 1.5 crore to 16.35 crore in April-November...

LPG subsidyThe Centre’s LPG subsidy bill in the first half of this fiscal was estimated at Rs 8,814 crore, compared with Rs 36,580 crore in the whole of last financial year and Rs 46,458 crore in FY14. (Reuters)

Despite steps taken by the government to restrict LPG subsidy to the needy, the consumer base for cooking gas expanded by a solid 1.5 crore to 16.35 crore in April-November, the fastest growth in at least the last couple of decades. While the steep fall in the global crude oil price — Brent crude is 33% cheaper than in the beginning of the current fiscal year — obviously spurred demand, analysts say at least a fourth of the 3.3 crore unauthorised users of subsidised LPG meant for households who have been weeded out under the direct benefit transfer (PAHAL) scheme must have taken new connections as commercial consumers.

As on January 1, 2015, when PAHAL went pan-India, the number of registered LPG consumers stood at 18.19 crore. Thanks to the scheme that restricted LPG refills to 12 a year and led to transfer of the subsidy directly to the bank accounts of intended beneficiaries, the number fell to 14.85 crore by April 1.

The connections have since swelled to 16.35 crore. At this rate, the new LPG connections in the whole year could be a whopping 2.25 crore, or an annual growth of 15%, unprecedented in recent history.

According to sources, post implementation of PAHAL, the diversion of domestic LPG for commercial and auto-LPG purposes has decreased. This is reflected in the high auto-LPG demand growth rate of 7.5% year-on-year during April-September FY16 against a decline of 23.7% during the same period in the previous year. Similarly, LPG-non-domestic, used for commercial purposes, has grown 38.6% year-on-year in the first half of FY16 against a fall of 11.5% in corresponding period in the previous year.

The Modi government’s policy, official sources said, is not to deny subsidy to the deserving population but reduce wastage and unauthorised use of the subsidy.

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The Centre’s LPG subsidy bill in the first half of this fiscal was estimated at Rs 8,814 crore, compared with Rs 36,580 crore in the whole of last financial year and Rs 46,458 crore in FY14.

Meanwhile, the government has cushioned itself against any sudden rise in international oil prices that could inflate its subsidy bill. Even as the LPG subsidy requirement — the difference between the market price and the subsidised price — has come down to Rs 140 per cylinder from over Rs 500 in April, 2014, the government continues to account for Rs 255 per cylinder as subsidy, leading to a surplus of Rs 2,500 crore in the oil pool account.

“The government may either withdraw surplus from the oil pool account in the fourth quarter of FY16 or the same could provide cushion for future under-recoveries if crude oil prices increase significantly. Overall, the subsidy burden is reducing with significant fall in leakages of LPG subsidy and relatively timely payment by the government,” said ICRA.

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