You may not have noticed it but the price of subsidized cooking gas rose by an average of Rs 10 per cylinder in the July-January period of current fiscal taking the price paid by the common man for fuel closer to market rates.
The good news is that with the developments in the past few months, the government is looking to completely eliminate oil subsidy by early FY22. But for consumers, the move would mean that their cooking gas price would shoot up by another Rs 100-150 per cylinder over the next one year.
The government is looking to completely eliminate oil subsidy by early FY22
Sources said that taking advantage of low oil prices. Also, the government may give nod to state-run oil marketing companies to increase the price of subsidized LPG cylinder. However, gradually so that the entire subsidy paid under the direct benefit transfer scheme (DBT) to eligible consumers is eliminated in one year’s time.
Already during July 2019-January 2020, the OMCs increased the price of subsidized LPG by Rs 63 per cylinder. At current global oil prices. Also, if oil companies raise the rate of subsidized LPG cylinder (14.2 kg) by just about Rs 10 per cylinder per month. However, in 15 months’ time there would not be any need to extend Central support.
The price of a subsidized LPG cylinder (14.2 kg) currently works to around Rs 557 with the government. However, providing Rs 157 as a subsidy directly into the account of eligible consumers. The subsidy level may fall if oil prices slide further. Also, remains below $60 a barrel in most parts of FY21.
“Raising prices of subsidized LPG cylinder augurs well for the OMCs, especially keeping in mind the intended privatization of BPCL. However, the resolve of the government would tested if oil prices spike,” said Motilal Oswal in its latest report on the oil and gas sector.
The oil marketing companies incurred gross under-recoveries of Rs 43,300 crore in FY19
At the end of FY19, the OMCs had total government receivables of Rs 34,900 crore on account of compensation for LPG/kerosene under-recovery. Deregulating LPG would boost the working capital of the OMCs.
The oil marketing companies (OMCs) incurred gross under-recoveries of Rs 43,300 crore in FY19. Also, of which LPG accounted for Rs 31,500 crore (73 percent). in the case of kerosene. However, the subsidy support has already fallen and with states targeting the flow of fuel through the PDS system. Also, this subsidy could also take off.
