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Published on: March 13, 2023, 1:48 p.m.
Political calculations
  • This is the second biggest one-time hike after the hike of Rs350 per cylinder, weighing 19 kg, in 2014

By Rakesh Joshi. Executive Editor, Business India

That energy prices in India move in tandem with election cycles is a well-established pattern by now and underlines the gap between de jure and de facto commitment to deregulation of energy prices. The latest hike in prices of commercial and domestic LPG cylinders is the first in eight months and comes immediately after the completion of an election cycle that covered the north-eastern states of Tripura, Meghalaya and Nagaland. 

The Bharatiya Janata Party has developed big political stakes in these states and was clearly concerned about the impact of a hike on its electoral chances. Hence, it waited till the results were out. The next hike, if it is required, will now take place only after the Karnataka election in May. 

In the national capital, commercial LPG cylinders will now cost Rs2,119.50 per unit, which is a 19.8 per cent hike from Rs1,769 earlier. And, the price of domestic LPG cylinders will be Rs1,103 per unit – a 4.7 per cent increase from Rs1,057.

In an ideal world, changes in the prices of LPG cylinders should not make the news. The Modi government has abolished LPG subsidies and, so, prices are supposed to be aligned to market rates, on the same lines as petrol and diesel. The LPG price in India is determined by the state-run companies on a month-to-month basis and is subject to change. But this is not how it works out in the real world.

This is the second biggest one-time hike after the hike of Rs350 per cylinder, weighing 19 kg, in 2014. The UPA government had held back the LPG prices in the run-up to the 2014 election. On assuming office, the Modi government had to hike the prices.

The price hike will add to the inflationary pressures but the government had to strike a balance between growing pressures on public sectors and OMCs with relief for the public. LPG prices are key elements of a household budget and an increase in prices may lead to an increase in inflation rate. In Kerala, some restaurants have reportedly hiked the cost of food items to defray the impact of the hike in commercial LPG prices. 

Inflationary pressure

The country is already under inflationary pressure and the retail inflation is above the 6 per cent upper tolerance limit, set by the Reserve Bank of India. The Consumer Price Index (CPI) or retail inflation for January rose to a three-month high at 6.52 per cent, according to data from the Ministry of Statistics & Programme Implementation (MoSPI).

The last price revision in the case of domestic LPG was on 6 July 2022. Global crude oil and fuel prices had skyrocketed in the aftermath of Russia’s invasion of Ukraine, which had forced the public sector OMCs – IOC, Bharat Petroleum Corporation and Hindustan Petroleum Corporation – to halt regular revisions in prices of fuels like petrol, diesel, and LPG, used by households, in a bid to shield consumers from extreme fuel price volatility, which has now subsided to a large extent.

  • In an ideal world, changes in the prices of LPG cylinders should not make the news. The Modi government has abolished LPG subsidies and, so, prices are supposed to be aligned to market rates, on the same lines as petrol and diesel

OMCs suffered heavy losses on the sale of these fuels, as they were selling below global prices. In October, the Centre gave a one-time special grant of Rs22,000 crore to the three companies to compensate them for their losses on domestic LPG sales.

OMCs have not revised prices of petrol and diesel since early April of last year. According to sources, with global fuel prices having softened considerably from the highs of 2022, the OMCs are now recouping the losses they suffered on the two fuels.

However, the OMCs have cut the price of aviation turbine fuel (ATF) by 4 per cent, amid the recent easing of global oil prices, owing to a gloomy economic outlook. ATF prices are typically revised on the first of every month, based on the average rate of international benchmark and foreign exchange rates.

Post the price cut, ATF is priced at Rs1.07 lakh per kilolitre in Delhi, falling from Rs1.12 lakh per kilolitre. With the latest cut in jet fuel prices, consumers may witness some relief in air fares, as fuel prices account for about 40 per cent of the operating cost of an airline.

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