PRICING OF LPG (Syllabus: GS Paper 3 - Economy)

Context: The price of domestic LPG cylinders has been cut by Rs 200 for all connections, in all markets across the country.

• This decision comes amid high inflation and ahead of crucial state and general elections. 
• India has a total of 314 million domestic LPG consumers.

Pricing of LPG

• The price of LPG is revised in India as per a formula known as import parity price (IPP). The common practice is to revise the price of LPG cylinders on a month-on-month basis.
• The IPP is calculated as per Saudi Aramco’s LPG price, the world’s largest producer. 
• The price includes costs like free on board (FOB) price, ocean freight, custom duties, port charges and insurance cost among other things. 
• The price thus calculated in US dollars is then converted to Indian rupees.
• To the international price, charges added domestically include inland freight costs, Oil companies’ margins, bottling costs, marketing expenses, dealer commissions and the Goods and Services Tax (GST). 
• The final price thus calculated gives the retail selling price for non-subsidised cooking gas cylinders for consumers across different states.
• Many people in India avail subsidies offered by the central government on LPG cylinders. 
• The subsidy amount is subject to change from one month to the next based on the international price of LPG and fluctuations in currency value.
• An increase in international LPG prices or weakness in the rupee, or both, translates into higher LPG prices in India.