India is expecting a big fall in its fuel subsidy spending in the April 2021 to March 2022 financial year because of lower oil prices and the impact of the Covid-19 pandemic on LPG demand.
Subsidies are expected to fall under 200bn rupees ($2.7bn) for the next financial year, based on crude prices of $50-55/bl, according to government figures confirmed by officials at state-controlled refiners. The government expects to spend around Rs409bn on LPG and kerosine, the only two subsidised fuels, in the current financial year that ends March 2021, with LPG accounting for around 90pc of this.
Delhi had initially budgeted around Rs373bn for LPG subsidies in 2020-21, up from Rs341bn a year earlier but down from Rs763bn in 2014-15 when the BJP party came to power. India removed subsidies on diesel in October 2014, after which a combination of higher LPG prices, falling kerosine use and a drop in oil prices sent the subsidy bill lower.
The government gave three free cylinders of LPG to poor, rural households as part of a stimulus policy to combat Covid-19, driving up this year's LPG subsidy bill. India's Covid-19 cases have crossed 10.1mn, making it the world's second-most infected nation.
A rise in crude and LPG prices this month has pushed costs of a 14.2kg non-subsidised LPG cylinder to Rs694. But the subsidy component will still be only just over Rs100/cylinder, compared to Rs250-Rs300 a few years earlier.
Consumption of LPG, which is mainly used as a cooking fuel in India, rose to 1.18mn t in the first half of December from 1.07mn t a year earlier, according to state-run refiner IOC. India's LPG penetration has nearly doubled since 2014-15, with 285mn homes using the fuel as of 1 November. Nearly 270mn households are eligible for subsidies. Poor, rural households average 2-3 cylinder refills a year compared with seven a year in urban areas.
