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

News-CRUX-10     31st August 2023        

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. 
The international price for LPG fluctuates in accordance with the price of its main raw material, crude oil.
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