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Latest Report: Rationalising LPG Subsidies, Reaching the Underserved
26 Nov 2014

India has witnessed a considerable increase in domestic consumption of LPG over the years and the phenomenal rise in the number of LPG connections in the country is testimony to it. The LPG subsidy though has only partially achieved its objectives, while inflating the fiscal burden to significant proportions.

This report is based on systemic investigation of the contemporary issues, review of recent literature, and utilises the data on consumption patterns and the associated expenditures of the Indian population (based on the data of 68th Round of the NSS).

Key Findings:

  • More than 50% of the LPG subsidy is received by richest 30% of Indian population, whereas the poorest 30% receive a meagre 15% of the subsidy share
  • Despite the LPG subsidy, the lower income groups spends disproportionately higher share of their monthly expenditures on procuring cooking energy
  • The distribution, and consequently the availability of LPG, is highly skewed towards urban areas which have more than 70% of distributors, as well as LPG connections, against 32% of the Indian population living in these areas
  • Apart from the affordability and availability of the fuel, the awareness of its benefits over traditional fuels also determine the fuel choices for cooking energy

Based on our findings, it is recommended that affordability, availability and awareness (the three As) need to be focused on simultaneously, to effectively achieve the objectives of LPG subsidy in the country.

Key Recommendations:

  • Rationalisation of subsidies: Reduce the subsidy cap limit to 9 cylinders per annum, to enable equitable usage while allowing fiscal space to increase LPG user base. Subsequent introduction of differentiated subsidy provision would have to be driven by uniform market price of the commodity and direct transfer of subsidies to households based on the economic conditions of the households. There are a range of options discussed in the report that could serve as identification criteria for both inclusion and exclusion from the subsidy range. Asset ownership data is particularly seen as a good indicator of the purchasing power of a household.
  • Improvement of LPG availability in rural areas through innovative approaches like extension counters, mini-distribution agencies led by self-help groups, and the use of innovative rural supply chains that currently deliver daily use consumer goods to far flung areas.
  • Awareness generation amongst the rural population and urban poor through various actors and means, about health and associated benefits of LPG consumption over inefficient usage of traditional solid fuels. This will create the demand for LPG from those sections who currently rely on alternatives, and will facilitate its higher adoption and usage in the long-run.

Read: Rationalising Subsidies, Reaching the Underserved -Improving Effectiveness of Domestic LPG Subsidy and Distribution in India

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