Why Are Indian Households Still Paying Low for Cooking Gas Amid Global Price Surge?

Cooking Gas Prices in India: Recent Changes and Global Context

New Delhi: Despite a significant increase in international LPG prices due to disruptions in West Asia, Indian households are still enjoying some of the lowest cooking gas prices worldwide. This statement comes after the government announced a hike of Rs 29 per cylinder in domestic LPG prices on Sunday.

The cost of a 14.2-kg domestic LPG cylinder in Delhi has risen from Rs 913 to Rs 942. However, beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY) will continue to pay an effective price of Rs 642 per cylinder, thanks to a subsidy of Rs 300 for the first four refills each year, a reduction from the previous nine refills.

This latest increase follows a previous hike of Rs 60 per cylinder on March 7, bringing the total increase to Rs 89 for a 14.2-kg cylinder. Prior to this adjustment, state-run oil marketing companies were reportedly incurring losses of approximately Rs 703 on each LPG cylinder sold.

According to the government, the cost of providing a domestic LPG cylinder has surged to over Rs 1,600 due to rising international prices, which escalated following the outbreak of conflict in West Asia at the end of February.

India's LPG import costs are tied to the Saudi Contract Price (CP), which serves as the global benchmark for this fuel. Since February, this benchmark has increased by around 46% due to supply disruptions linked to the Strait of Hormuz.

Even with the recent price hike, domestic LPG prices remain lower than those in neighboring countries like Pakistan, Nepal, Bangladesh, and Sri Lanka, and are significantly cheaper than in developed nations such as the United States, Australia, and Canada.

The government also highlighted that India is one of the few nations that maintained uninterrupted energy shipments through the Strait of Hormuz during the crisis, ensuring a steady supply of LPG and other petroleum products. To safeguard availability, domestic LPG production was ramped up, and supplies were diversified through alternative sourcing.

As of the end of the previous financial year, cumulative under-recoveries on domestic LPG sales reached approximately Rs 60,000 crore, an increase from Rs 41,338 crore the previous year. The Union Cabinet has approved Rs 30,000 crore in compensation for state-run oil marketing companies to help mitigate these losses.

The government emphasized that the latest price revision aims to balance the need to protect households from fluctuating global energy prices while ensuring the continued availability of cooking fuel throughout the country.

"The prices of petroleum products in India are influenced by international market rates. However, the government continues to adjust the effective price for consumers of domestic LPG. Any household can purchase as many cylinders as needed at Rs 942," the statement noted.

"PMUY beneficiaries will also receive a direct benefit transfer of Rs 300 per cylinder for the first four refills each year, which aligns with the average annual consumption of a typical Ujjwala household. This support remains unchanged," it added.

Even households not enrolled in PMUY will pay about Rs 700 less than the market-linked price of the cylinder.

Retail prices may vary slightly across different locations due to distribution costs.

"The burden of several hundred rupees per cylinder is absorbed by the government rather than passed on to consumers. During periods of sharp international price increases, this cost has been managed upstream," the statement explained.

While commercial cylinders used by businesses and hotels are adjusted monthly based on international benchmarks, domestic cooking cylinders do not follow this pattern.

"India previously imported 60% of its LPG needs, with the landed cost of these imports tracking the Saudi Contract Price set by Saudi Aramco at the beginning of each month. This external price is beyond the control of Indian consumers," the government stated.

The recent disruptions in West Asia have caused a sharp increase in the benchmark price. "For the 50:50 propane-butane blend used for India's LPG, the Saudi CP was approximately USD 543 per tonne in February before the crisis. Following the closure of the Strait of Hormuz, the April contract price rose to USD 775 per tonne, with propane at USD 750 and butane at USD 800, and has since increased to USD 790 per tonne in June," it added.

The blended LPG benchmark has thus risen by about 46% since the pre-crisis levels.

"This increase is evident in the fully market-priced commercial cylinder: the 19 kg cylinder used by hotels and restaurants is priced at Rs 3,113.50 in Delhi, approximately Rs 164 per kg, following five price hikes during the West Asia crisis. In contrast, the domestic household pays around Rs 66 per kg after the recent revision," the statement noted.

"Commercial gas incurs higher taxes and margins, placing it above the household's cost-reflective level; nevertheless, the import-linked cost of a domestic cylinder exceeds Rs 1,600."

The government assured that it maintained a steady supply of LPG and other petroleum products despite the disruptions in the Strait of Hormuz, a crucial shipping route for 54% of India's LPG imports. Domestic LPG production was increased by over 60%, from about 32,000 tonnes daily to approximately 52,000 tonnes. Additionally, imports were diversified to include suppliers from the United States, Canada, and Algeria, ensuring a consistent flow of LPG to Indian ports and preventing domestic shortages.

To conserve supplies, consumers were encouraged to switch to piped natural gas where available, and enforcement against the diversion of subsidized LPG cylinders for commercial use was intensified through the implementation of OTP-based delivery verification. These measures helped sustain household supplies during a period of heightened geopolitical tensions and supply chain disruptions.

"The under-recovery is distinct from the subsidy: the gap between the international cost and the regulated retail price is estimated to have risen to Rs 60,000 crore for domestic LPG in the last financial year, up from Rs 41,338 crore the previous year. This burden is borne by public sector marketing companies and the government, which has approved Rs 30,000 crore in compensation. Additionally, Ujjwala consumers receive an extra Rs 300 per cylinder directly credited to their bank accounts, benefiting over 10.58 crore connections," the statement concluded.