LPG Subsidy Under PM Ujjwala Yojana Could be Reintroduced in 2023

After the near-complete removal of the budgetary subsidy on liquefied petroleum gas (LPG) in the Financial Year 2022, the Centre may be required to provide a sizable amount for this purpose in 2023.

Even though no cooking gas subsidy has been transferred to households' bank accounts since June 2020, an incomplete pass-through of costs to consumers has inflated the state-run oil marketing companies' under-recoveries on this count.

In addition, the reintroduction of LPG subsidy under the PM Ujjwala Yojana, which is aimed at low-income people, is expected to cost Rs 6,100 crore in FY23.

The ministry of petroleum is said to have identified a Rs 40,000 crore requirement to cover OMC LPG under-recoveries in H2FY22 and the current fiscal, citing elevated global crude and LPG prices. According to Nomura, OMCs' under-recoveries on LPG in Q1FY23 alone are worth Rs 9,000 crore. According to it, under-recoveries totaled Rs 6,500-7,500 crore in H2 last year.

The Centre allocated Rs 5,800 crore for LPG subsidies in the FY23 Budget, including a direct benefit transfer of Rs 4,000 crore for domestic use and another Rs 800 crore for the poor under the Ujjwala scheme.

"The FY23 budget allocation is insufficient." Additional allocations will be required, but they may not be as large as the petroleum ministry's estimate of Rs 40,000 crore," as per an official.

Meena Shukla, a resident of Rajajipuram, Lucknow said, they were very upset when the government limited the LPG subsidy on cooking gas to households but if it is planning to reintroduce it next year then it will be very helpful to me and many others.

LPG subsidies in the budget fell from Rs 24,172 crore in FY20 to Rs 11,896 crore in FY21. In FY22, the subsidy was only Rs 241 crore. Given that other fuels, including gasoline and diesel, are no longer subsidized, the Centre's Budget was almost entirely free of the burden of fuel subsidies in FY22, bringing an end to a sticky and politically sensitive item of revenue expenditure that it had long struggled to eliminate.

Domestic LPG subsidies have been limited to small amounts of freight subsidies for remote regions since June 2020. Domestic LPG is currently priced at Rs 1,053 per 14.2 kg cylinder. The price has risen 11% since April 2022 and 78% since June 2020.

The government was able to withdraw the LPG subsidy due to a drop in global crude oil prices (and thus global LPG product prices) in April-May 2020. Because of low global LPG prices, end-users will not feel the pinch until November 2020. The government did not reinstate the subsidy because prices have since risen. Without any official announcement, the decision to end the subsidy was made and implemented.