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LPG Cylinder Subsidy Falls To Zero For The First Time In Years

By on May 25, 2020 0 2067 Views

After there was a consecutive rate cut in the price of LPG cylinder by almost Rs. 162.50 a unit in Delhi, there is another update for the consumers. The subsidy on LPG cylinders has now fallen to zero, first time in many years.

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In fact, as per the calculation of Nomura report, oil companies in India may even make over Rs. 120 on every LPG cylinder in May.

What Is The Reason Behind This Fall?

As per the reports, the international price of petroleum products and gas has faced a steep decrease. This has led to cheaper LPG for the government. Earlier, the government had increased the price of subsidized cylinders.

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It also introduced the Direct Benefit Transfer scheme in January 2015, in which the consumer had to pay the full amount of cylinders. Later, the government used to reimburse the subsidy amount directly to the bank accounts of consumers. Now, the subsidy is zero and the government gets to earn Rs. 120 for every cylinder.

How Does Government Decide Cylinder Prices?

The price of an LPG cylinder is based on various factors and parameters. Essentially, it is determined by the import-parity price of Saudi LPG price (with a one-month lag).

Now, the price build-up also includes other costs such as bottling charges, inland freight, cylinder costs, return on investment, dealer commission and GST among others.

Interestingly, the full price of LPG cylinders is revised by the oil marketing companies every month. The government decides the subsidy amount separately.

Last month, the price of LPG cylinders reduced in various metropolitan cities amid a slump in the major global markets.

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