Impact of rising in LPG prices on the household budget in India

Abstract

Liquefied petroleum gas is the primary cooking fuel in urban and rural areas throughout all
India's socioeconomic classes. However, the Indian government's recent decision to restrict
the amount of subsidized, rising cost of cylinders and non-renewable existence of LPG
presents a doubt regarding this choice. This paper illuminates the motivations for
improvements in LPG pricing. A plan to reduce the under-recoveries of the OMCs was
created to properly distribute monetary benefits to the in-tern sector and encourage
introducing a renewable energy policy. The paper also discusses government support
programs and their impact on the average citizen. The paper addresses Biogas and Solar as
feasible alternative cooking fuels in the immediate future, giving an extensive overview of
the current developments and the expansion of the non-conventional fuel industry as an LPG
replacement. The idea of "the Value of Renewable energy has been attributed to LPG price
increase."

Introduction

LPG is the primary cooking fuel in most developed countries such as India. LPG as per the
census of India 2011, the number of Indian households using LPG as a cooking fuel was
estimated to be approximately 28.5% or approximately 33.6 million, as per the census of
India in 2011. India is the third-largest producer of LPG in the world after China and the
United States in the domestic market. The increased demand and use of LPG in residential,
manufacturing, commercial, and transportation sectors were only because of its healthier
properties, higher octane, lower carbon emissions, and other beneficial uses.

UN resolution proclaimed 2012 as the "the World Year of Renewable Energies for All."
These initiatives have three focal objectives: the provision of modern energy utilities such as
electric and clean cooking. implementing the same policies, the government of India aims to
see a 50% increase in the Rural-Domestic (versus city/town) LPG customers in the LPG
pipeline by the end of the year 20151. Despite the rising price of LPG over the last few years,
the government's target is to push down the price of LPG for the general public. in response
to Kelkar's study of 20122, Government of India capped the amount of subsidized and
unsubsidized cylinders at 905 rupees. This government strategy has affected almost all of
1
Apurva Chandra, "Indian LPG Market perspective," world LPG forum 2010, Madrid.
2
Vijay Kelkar, Indira Rajaraman, Sanjiv Mishra; "Report of the committee on the roadmap for fiscal
consolidation," September 2012.
India in some way or another. This paper aims to examine and assess the triggers of the
domestic gas price hike and propose possible strategies for all energy policies by 2030.

Recent news on hike prices of LPG

LPG cylinder rates have been increased by ₹25 per gallon.

It has increased the price of household petrol refills by Rs—100 each for the third time in the
month in a concise amount of time. At the current price, a 14.2 kg cylinder in Delhi costs 794
more than it did on Wednesday.

The latest price in the four main metros is Bengaluru at ₹820 ( ₹795). Cylinder prices in
Chennai now are $69.00 (Mumbai price: $7.00). Price in Hyderabad is $8.21 (formal: Price in
Hyderabad is $8.21).

The cost of propane-propane gas and its exchange rate against the US dollar rose this month
by $0.25 and $0.50.

The cost of domestic cylinders had risen by ₹100 in December. Indian Oil Company, along
with British Petroleum and Hindustan Petroleum Corporation, had then increased oil price by
fifty paise twice. While they left the prices alone in January, the recent adjustment converts
into a cylinder price rise of ₹200 over three months.

When the prices of petrol and diesel are at an all-diesel blend are higher, contributing to
cascading results on the end-user, especially for vegetables. Petrol rates are over Rs.100 in
many towns, threatening to raise LPG refill costs by 1,000, which might endanger many
households.

Households that ordered at least 12 cylinders qualify for a subsidy is. The subsidy, which has
been in the accounts, has now been credited to the customers' bank accounts. There are about
₹25 Rupees per cylinder in Chennai, while in Hyderabad, the direct profit transfer (DST) will
stay about the same before LPG prices rise again.

Effect of LPG price hike

As a consequence of the government's move to increase Liquefied Petroleum Gas price, there
was restlessness amongst the ordinary citizens. It is currently a critical topic. Just 93% of
Indians think that the government's decision to restrict the number of cylinders to 9 is fair.
The LPG cylinder price spike has increased food prices in hotels. The authors have
performed a survey of 300 households in Maharashtra's cities to determine the effects this
price rise would have on residents. 3 This survey shows that the transition to alternatives like
electricity, biofuels, etc. Kerosene is occurring NonconventionalNonconventional energy
sources presently satisfy just a tiny portion of our requirement. Many citizens are interested
in discovering additional sources of resources and implementing them in their everyday life.

Many citizens believe that the working guy's responsibility has been lightened because
money has been thrown at the wealthy and favored individuals and supported. Rising price
pressures around the board would be exacerbated by the whole method. There will then be an
inevitable further decline in India's currency, leading to an eternal period of misery. This
price increase is only good because it encourages people to use LPG for cooking and heating
over other green energy. This price rise will help you to appreciate the "benefit" of clean
energy.4

How are LPG prices determined in India?

The import parity price (IPP) model, which is based on foreign commodity rates, is used to
assess the price of LPG. The contract prices of Saudi Aramco are used as a benchmark in this
estimation. Saudi Aramco's LPG rates, free-on-board prices, ocean freight costs, customs
fees, and port dues are factored into the IPP formula.

Until calculating the final LPG retail price in India, local freight prices, bottling charges,
advertisement expenses, margins for OMCs, distributor fees, and the Goods and Services Tax
are all taken into account. Currency movements also affect prices.

The government credits the increase in Indian rates to the rise in global prices due to this
weighting of foreign prices.5

How will the price rise affect the government?

When world prices dropped due to the COVID-19 pandemic, the government abolished the
LPG subsidy. From May, the government in Delhi and many other states started paying a
subsidy under the DBTL system. Because of the recent price hikes, the government would
have to reinstate the cooking gas subsidy.

3
Masami Kojima, "The role of liquefied petroleum gas in reducing energy poverty," Extractive Industries for
Development Series 25, December 2011.
4
LPG prices increased, domestic cylinder costs ₹25 more, The Hindu (2021),
https://www.thehindu.com/news/national/lpg-prices-increased-domestic-cylinder-costs-25-more/
article33930002.ece (last visited April 2, 2021).
5
The World Happiness Report Is No April Fool Spoof; It is A Sinister Plot, Moneycontrol (2021),
https://www.moneycontrol.com/news/opinion/the-world-happiness-report-is-no-april-fool-spoof-its-a-sinister-
plot-6716761.html (last visited April 2, 2021).
Finance Minister Nirmala Sitharaman declared a Rs 12,480 crore LPG subsidy in the Budget
last month, compared to Rs 25,520 crore in 2020-21 and Rs 35,605 crore in 2019-20. This
suggests that the government will possibly reinstate the subsidy scheme shortly.6

Reasons for LPG price hike

The average price of Indian Basket Crude oil rose from $20.20 per barrel in May 2020 to
$64.54 per barrel on March 2, 2021. Brent oil prices hit a high of $63.77 per barrel on March
2, up from a record low of $19 per barrel in April 2020.

Butane accounts for 60% of India's LPG blend, while propane accounts for 40%. As a
consequence, these two's prices are deemed critical. Saudi Aramco raised its term contract
price to $625 per metric tonne in March, up to $20 from February. In March, butane prices
rose by $10 per mt to $595 per mt. Since May 2020, when propane was $230 per mt and
butane was $240 per mt, propane prices have increased by 171%, and butane prices have
increased by 148%.

On the other side, on March 2, the exchange rate was Rs 73.29 per dollar, down from an
average of Rs 76.23 per dollar in May.

An LPG gas cylinder's cost is continuing to grow, following an increase in the prices paid by
oil firms for cooking gas on January 1, 2021. The price of a 19-kg LPG cylinder in the
national capital Delhi has been raised to Rs 1349, up from Rs 1332 in December last year.
The cost of a 14.2-kg gas cylinder has remained unchanged at Rs 694.

According to sources, oil market firms raised cooking gas prices twice in December of last
year. In December, oil producers increased cooking gas prices by Rs 100, the highest rise in a
single month. Throughout a fortnight in December, the price of a 14.kg LPG gas cylinder
increased by Rs 50.

According to news, a "proposal for a cess has been debated," with tentative negotiations
focused around a limited cess on high-income earners and other indirect taxes.

Meanwhile, industry analysts reiterated the ordinary person's sentiments, adding, "We want
the government to reduce excise duty on gasoline and diesel to bring down fuel prices, which
have reached record levels."

6
The World Happiness Report Is No April Fool Spoof; It is A Sinister Plot, Moneycontrol (2021),
https://www.moneycontrol.com/news/opinion/the-world-happiness-report-is-no-april-fool-spoof-its-a-sinister-
plot-6716761.html (last visited April 2, 2021).
 Schemes related to hiking in LPG prices

PRADHAN MANTRI UJJWAL YOJANA: -

On May 1, 2016, the Ministry of Petroleum and Natural Gas initiated the Pradhan Mantri
Ujjwala Yojana (PMUY). The government initiated this system and will be applied for three
years, including the financial years 2016-2017, 2017-2018, and 2018-2019. This program
offers LPG connectivity to households living below the poverty line (BPL). The LPG
connections given under this arrangement are in the names of the household's female
beneficiaries. This scheme also provides an EMI alternative for the expense of the stove and
refills.

Since most rural households in India used fossil fuels to cook their meals, the government
implemented this program. LPG connections were inaccessible to rural and low-income
families. The use of fossil fuels affects the welfare of the women in these families. As a
result, the government agreed to implement this scheme and offer Rs 1,600 per LPG link
provided to rural and BPL families. This program incentivizes rural households and low-
income families to get LPG connections.

What is PMUY: - The use of LPG is more common in India's urban and semi-urban regions.
The bulk of the rural community and BPL households prefer to cook their meals with fossil
fuels. The use of fossil fuels puts the women in these households at risk of significant health
problems. Open fire in the Kitchen, according to researchers, does as much harm as smoking
400 cigarettes in an hour.7 Indoor air emissions also cause children's breathing conditions. Air
contamination and erosion are also effects. Under the leadership of Hon'ble Prime Minister
Shri Narendra Modi, the Ministry of Petroleum and Natural Gas launched the Pradhan Mantri
Ujjwala Yojana (PMUY) in May 2016 to resolve the above problem.8

Beneficiaries of PMUY: -

The scheme's primary beneficiaries are women from low-income households who do not
have access to LPG in their homes. The govt. originally protected the following written
categories under the scheme: -

 List of beneficiaries in the SECC 2011 list

7
Petroleum.nic.in (2021), http://petroleum.nic.in/sites/default/files/pmuy.pdf (last visited Apr 2, 2021).
8
Pradhan Mantri Ujjwala Yojana (PMUY) - Benefits, Eligibility, Process & Documents Required, Cleartax.in
(2021), https://cleartax.in/s/pradhan-mantri-ujjwala-yojana-pmuy#:~:text=of%20fossil%20fuel.-,Features%20of
%20PMUY,(Interest%2Dfree%20loan). (last visited Apr 2, 2021).
  All SC/ST’s household’s beneficiaries of the Pradhan Mantri Awas Yojana (PMAY)
(Gramin)
 Antoyoday Anna Yojana (AAY)
 Forest Dwellers
 Most backward Classes (MBC)
 Tea and Ex- Tea Garden Tribes
 Residents of islands and river islands

The scheme's incentives have been applied to citizens in hilly counties, like the North-Eastern
(NE) states, by classifying them as "priority states."9

Eligibility criteria: -

 The claimant must be a woman of at least 18 years of age.

 The applicant must be a rural citizen and have a BPL passport.
 To claim the subsidy, the borrower must have a savings bank account in one of the
nationalized banks.
 The applicant's household must not already be connected to an LPG supply.

Documents required for PMUY: -

 BPL ration card

 Authorized BPL certificate
 Aadhar Card/ Voter Id
 A recent size photograph

Process of implementation of PMUY: -

 A woman from a BPL family who does not have connections to LPG must request a
new link with the LPG distributor (in the prescribed format).
 When applying for a relation, the applicant must include their address, bank account
number, and Aadhar card number.
 Officials from the LPG fuel companies can cross-reference the information shared
with the SECC – 2011 database to check the family's BPL status and insert it into a
dedicated server provided by the Oil Marketing Companies (OMC).
9
Pradhan Mantri Ujjwala Yojana (PMUY) - Benefits, Eligibility, Process & Documents Required, Cleartax.in
(2021), https://cleartax.in/s/pradhan-mantri-ujjwala-yojana-pmuy#:~:text=of%20fossil%20fuel.-,Features%20of
%20PMUY,(Interest%2Dfree%20loan). (last visited Apr 2, 2021).
  The de-duplication exercise and other due diligence procedures will be carried out
online by OMCs.
 The OMCs will issue the LPG link after all of the above measures have been
completed.
 The government is responsible for the linking fees. On the other hand, the OMCs will
give the applicant an EMI alternative, which will be deducted from the monthly
subsidy due to the applicant.
 If the state government, a non-profit organization, or a person wishes to contribute to
the stove's expense and the first refill, they may do so; moreover, they may do so only
under the terms of the said arrangement, i.e., under the umbrella of PMUY.
 The OMC's comprehensive Melas can often be used to release new links at different
locations.
 Depending on the field scenario, the system would protect BPL families under both
types of distributorship and for different cylinder sizes.

Progress of PMUY scheme: -

Initially, the government intended for PMUY to be effective until 2019. The government set
an eight-crore deadline for this scheme, which they met by the end of 2019. There was no
plan to extend this program into 2019. However, in March 2020, the government declared
that PMUY beneficiaries would get refills of up to three 14.2 kg cylinders from April to June
2020 under the Pradhan Mantri Garib Kalyan Yojana program order to tackle the COVID-19
crisis. The PMUY recipients would also get a discount on the retail purchase price.

The retail sale price would be credited to the PMUY customer's bank account by the Oil
Marketing Companies (OMC). Customers of PMUY may receive refills from the dealer by
removing the retail sale price. This advantage lasted until September 30, 2020. In April, the
Indian Oil Corporation Ltd issued more than 11 lakh free LPG to PMUY beneficiaries in
Maharashtra as part of the Pradhan Mantri Garib Kalyan Yojana scheme.

According to data provided by the Ministry of Petroleum and Natural Gas, the OMCs
transferred a free refill advance of Rs.296 crore to PMUY beneficiaries in Maharashtra. In
April, Maharashtra issued 13 lakh refill bookings and 11 lakh cylinder deliveries.

According to a circular released by the state-run oil retailers in June, beneficiaries who
earned payment for a refill in April or May may have to compensate for the third cylinder's
refill. The OMC, on the other hand, claimed that they would refund the cost of refilling the
third cylinder until the LPG delivery was verified on their portal.10

According to records, just 42 percent of the cylinders were delivered in June. However, in
three months, there could have been a shipment of about 240 cylinders. As part of the
Pradhan Mantri Garib Kalyan Yojana, the government gave PMUY beneficiaries three valid
cylinders until June 30, 2020. On July 6, 2020, the government declared that PMUY
beneficiaries who are poor women would get the unclaimed three LPG cylinders before
September 30, 2020.

The government granted the extension until September to assist the recipients in dealing with
the economic challenges brought about by the country's lockdown. Furthermore, since many
rural or BPL households do not use one complete cylinder in a month, all beneficiaries were
unable to benefit from the three-cylinder limit. The government granted the extension to
those who had been given credit for a refill but were unable to buy one due to various factors.
More than ten crore LPG bottles were distributed to poor households under this program
between April and June.11

The OMC would transfer refills of up to three 14.2 kg cylinders and advance the Retail sale
price to the PMUY customer's bank account, which can be withdrawn to procure refill from
the seller part of the Pradhan Mantri Garib Kalyan Yojana scheme for PMUY beneficiaries.
This plan was designed to help PMUY consumers deal with the COVID-19 crisis. The
program was effective until September 30, 2020.12

LPG cylinders' rising cost seems to be causing poor Pradhan Mantri Ujjwala Yojana (PMUY)
beneficiaries to return to using dirty petrol. In its recent Ecowrap paper, SBI Research
recommended a range of steps to counteract this development. One of these ideas is to
provide deserving beneficiaries with four unrestrained LPG cylinders per year. According to
the paper, even though the PMUY has solved the issue of LPG cylinder supply across the

10
Mayashree Acharya & Mayashree Acharya, Pradhan Mantri Ujjwala Yojana - Is there a need for an
extension? ClearTax Chronicles (2021), https://news.cleartax.in/pradhan-mantri-ujjwala-yojana-is-there-a-need-
for-an-extension/#:~:text=PMUY%20aims%20to%20provide%20free,to%20cover%20five%20crore
%20women. (last visited Apr 2, 2021).
11
Mayashree Acharya & Mayashree Acharya, Pradhan Mantri Ujjwala Yojana - Is there a need for an
extension? ClearTax Chronicles (2021), https://news.cleartax.in/pradhan-mantri-ujjwala-yojana-is-there-a-need-
for-an-extension/#:~:text=PMUY%20aims%20to%20provide%20free,to%20cover%20five%20crore
%20women. (last visited Apr 2, 2021).
12
Pradhan Mantri Ujjwala Yojana (PMUY) - Benefits, Eligibility, Process & Documents Required, Cleartax.in
(2021), https://cleartax.in/s/pradhan-mantri-ujjwala-yojana-pmuy#:~:text=of%20fossil%20fuel.-,Features%20of
%20PMUY,(Interest%2Dfree%20loan). (last visited Apr 2, 2021).
world, the issue of affordability persists. That cost of LPG cylinders has only exacerbated the
problems of vulnerable beneficiaries who cannot afford expensive refills.

The price of a non-subsidized LPG cylinder in Delhi has risen by Rs 284 in the last six
months, from Rs 575 in August 2010 to Rs 859 in February 2020.

SBI Research showed that 24.6 percent of beneficiaries never returned for a second refill,
17.9% refilled one or two cylinders, 11.7 percent refilled three cylinders, and 45.8% refilled
four or more cylinders after analyzing state-by-state refill details of 5.92 lakh connections
built before December 2018 and refill up to June 3, 2019. "This means that 54.2 percent of
total PMUY users consumed three or more cylinders in a year. On the other side, Logic
indicates that a family of four requires at least 3-4 cylinders each year. This suggests that
PMUY cylinders are not being used daily, according to SBI Studies.

Even though PMUY is an excellent move in promoting renewable energy to rural households,
the usage of PMUY among rural households in states with low per capita income may be
lower due to ongoing LPG price increases, according to the study.

Alternates

the most promising road to realizing a "Sustainable energy for everyone" by the year 2030 is
the intensive usage of green and non-traditional resources. India has vast clean energy
resources, which are under-estimated. However, the situation is emerging from previous
years, and the potential for green energy is on the increase in India. Additionally, India's
position in the power generation from the BRICS (except the hydropower generation). 13
Domestic methane production and direct usage of solar heat is a healthy option for the use of
LPG.

India generates 67.5 million tonnes of urban waste per day, while 48 percent is gathered and
deposited in the towns. Additionally, 1.48 million tonnes of medical waste is produced per
year. With that in mind, approximately 1.46 million tonnes of e-waste are produced per year.
India is an agriculture-based economy; there is significant potential to use agricultural waste
to generate approximately 600-1000 million tonnes of greenhouse gas per year. There are
over 4.4 million biogas digesters and 3.8 GW of biomass-based power plants in India's
service.

13
Antonette D’Sa, K.V. Narsimha Murthy, “ Report on the use of LPG as a domestic cooking fuel option in
India," International Energy Initiative, Bangalore, Elsevier Publications, June 2004
Nonetheless, it just accounts for 2% of overall electricity production in India. With increasing
demand, biogas and plasma pyrolysis should be encouraged. By implementing Biogas
decomposition or domestic biomass gasification in any public building, a significant
reduction in LPG use could be achieved as well as a rise in fertilizer output. In India, bio-
methane processing facilities, like those in ART Pune, are more time- and resource-efficient
to develop but lack qualitative and quantitative benefits. Even, much as in the idea of a
communal Kitchen, a centralized waste and garbage disposal scheme may be introduced. The
government should also consider teaching the technical aspects of biogas plants, such as
fabrication and maintenance, to both the public and the schools to help develop biogas use in
the community.

Solar energy is another natural resource that is plentiful during the year in India and the
Indian subcontinent. Solar energy has direct and indirect applications such as water heating,
cooking, and electricity production utilizing PV cells, India's most underutilized resource. In
certain countries, the typical average solar energy incidence is between five and seven
KWH/m2, and there are between 250 and 300 bright sunshine days each year. Despite this,
over 200 million households worldwide utilize solar hot water collectors, with China
accounting for 64% of the number. India's share, on the other side, is just 1.5 percent.
Similarly, India's allocation to other solar heating and cooling applications is just 1%. More
effective solar collectors, designing feasible technology for direct heat storage and recovery
systems utilizing PCMs, and penetration of solar system innovations through different social
strata are the main challenges in increasing solar energy use as a replacement for LPG. 14

The government could pass regulations requiring installing solar water heaters in any
residential home, or the installation of a biogas digester in a residential society, or other
similar initiatives to create "Solar villages or towns." The establishment of cooperative
"Energy communities" will help to foster progress in this area. Developing a feasible
technology, supporting the usage of alternative energy sources, and growing subsidies for
renewable energy sources other than LPG cylinders will all add to equitable access to clean
energy.

Conclusion

14
C.B. Jagadeeswara Reddy, "promotion of smoke-free villages in Chittoor district & employment generation to
rural youth through solar food processing," Proceedings of WATSE-2009, 20th-21st February.
Many people cannot afford gas cylinders due to their low household income, and the OMC
subsidization fails to return an adequate amount of profits. Consequently, the government has
decided to cut the number of subsidized cylinders given to those in India. Some people
speculate that the global influence of foreign currencies and import/export day has impacted
the day-of-to-day price. The import/export day may drive up the end-of-of-of-of-the-the-
month CPI. These concerns are another justification for those worried about climate change
to pay heed to biogas and draw public attention to solar and alternative energy sources that
are not traditional. Although it can be assumed that non-renewable energy would come to
rule as the preferred cooking fuel in India, this alternative energy source has the possibility of
being significant in its capability for the nation.