It reviews the new pricing policy of LPG.

1. LPG PRICING MODEL
ANKIT APURV
Indian Institute of Technology, Kharagpur

2. NEED
FOR A NEW PRICING POLICY FOR LPG
WHY?

3. NEED
FOR A NEW PRICING POLICY FOR LPG
EVER INCREASING BURDEN OF FUEL SUBSIDY

4. FACTS
• 9.3 MMT in 2003-04 to 12.3 MMT in 2008-09.
•Sale of subsidized domestic LPG cylinders constituted 86.5% (749 million cylinders
of 14.2 KG) of total LPG sale in 2008-09.
•The consumer subsidy on domestic LPG has grown from Rs 5,523 crore in 2003-04
to 7,600 crore in 2008-09 and is estimated to be around Rs14,152 crore in
2009-10.
Source : Kirith Parikh Committee Report

5. PRICES
• Up to 9 units of cylinder at subsidized price of Rs410.50*.
•Beyond 9 units at market price of Rs942*
* New Delhi Prices

6. FEATURES
• Uniform price across all sections of the society (rural/urban, rich /poor).
•Household is chosen as a unit of consumption.
•A very sharply defined Limit.
•De-regulation of Market Prices

7. UNIFORM PRICES FOR ALL THE SECTIONS

8. UNIFORM PRICES FOR ALL THE SECTIONS
=

9. A VERY SHARPLY DEFINED PRICE LIMIT

10. A VERY SHARPLY DEFINED PRICE LIMIT

11. Households as a Unit of Consumption?

12. Households as a Unit of Consumption?
V/S

13. How to Decide the Number of Units to be
Subsidized?

14. POLITICAL BARGAINING

15. POLITICAL BARGAINING

16. LPG as a Household Commodity

17. What part of household income goes into LPG
consumption?

18. What part of household income goes into LPG
consumption?

19. FEW OBSERVATIONS
•It is seen that rural households use from 5.17 to 7.91 cylinders
per year. The LPG-using rural households belonging to the four
poorest deciles use less than 6 cylinders per year and the richer
households use more.
•Rural households use less cylinders than urban households as
the former have access to alternate fuels such as fuel wood.
• The households belonging to the poorest decile of urban
consumers use
8 cylinders whereas the top 5 deciles use 10 cylinders.

20. Who is Actually Getting the Subsidies?
The LPG-consuming households in the top 3 decile in urban
areas, comprising some 22 million households, use nearly
40 per cent of LPG and spend less than 5 per cent of their
total expenditure. These households get a large part of the
subsidy even when they have the capacity to pay the
market price for LPG and will use LPG even when the price
is raised.
Since providing universal subsidy through price below the
cost misdirects the subsidy to the relatively affluent, a
strong case can be made for subsidizing LPG as a clean
cooking fuel for the poor.

21. Households as a Unit of Consumption?

22. WHY
Households as a Unit of Consumption?

23. Administrative Impossibility

24. Smart Card

25. Need for an Effective System
• If
the poor are to be subsidized, we need an effective
mechanism to provide the subsidy.
•A smart card system or transfer on entitlement based
on the UID platform can be used which entitles a
household a fixed quantity of LPG at subsidized price
beyond which the market price would be charged.
•Alternatively, direct cash transfer may be provided and
everyone is charged the market price.

28. Need for Promotion of LPG as a clean fuel