Health First, Fiscal Prudence Later

Context: LPG subsidy is a critical social investment to free-up women’s productive time and reduces public health burden. To realize these goals, there is a need to balance LPG subsidies and ensure sustained clean fuel consumption in poorer households.

About Pradhan Mantri Ujjwala Yojana, PMUY

• Since 2016, PMUY provided LPG connections to 8 million poor households
• Helped expand LPG coverage to > 85% of households, in comparison to less than a third in 2011.
• Offering one crore new connections under Ujjwala 2.0 in FY22.

Associated issues

• Price rise: Subsidized LPG prices increased by 50% this financial year. There has also been a reduction in LPG subsidy by 50% in the Budget for FY22 (versus FY21)
• Limited uptake among poor households: Survey by Council on Energy, Environment and Water (CEEW) suggest that, on average, PMUY beneficiaries consumed about half the LPG compared to regular consumers. Reasons:
  • Effective price of LPG is not affordable despite subsidy.
  • Access to freely available biomass.
• Pollution and health concerns: Biomass use for cooking contributes to indoor air pollution and up to 30% to ambient PM2.5 (more than the contribution of transport, crop residue or coal burning)
• Lack of transparency in the pricing of subsidized LPG: LPG prices increased during pandemic times despite plummeting international market prices of LPG.

Way Forward

• Better targeting of subsidy:
  • Consumption pattern-based targeting: Provide households exhibiting low consumption or a decline in LPG consumption with greater subsidy per cylinder.
  • Adopting a dynamic subsidy model with different slabs reflecting the previous year’s consumption
• De-duplication efforts: To weed out households with multiple LPG connections.