PM Ujjwala Yojana Beneficiaries Are Using Less LPG Refills Due to Price Hike of Rs284 in Just 6 Months: SBI
The Pradhan Mantri Ujjwala Yojana (PMUY) has been successful in providing liquefied petroleum gas (LPG) connections to almost every household in the country. However, the consumption by PMUY beneficiaries and other poor households is still picking up pace. In fact, trends indicate that continuous increase in LPG prices and subsequent decline in annual refill of gas cylinders under PMUY could be strongly correlated, says a research note from State Bank of India (SBI)
In the report, Dr Soumya Kanti Ghosh, group chief economic adviser of SBI, says, "Though, PMUY has solved the problem of availability but the affordability barrier still exists. For example, in 2018-19, the average consumption of LPG by a PMUY household was three cylinders per annum in contrast with 6.7 cylinders by an average non-PMUY household. As a result, the larger objectives of the programme regarding improving health outcomes for rural women and children is still being fulfilled. This calls for further interventions that can help increase LPG consumption by poor and rural households."
The price of non-subsidised LPG cylinder (in Delhi) has increased to Rs859 in February 2020 from Rs575 in August 2019, an increase of Rs284 in just six months. Interestingly the inflation in firewood and chips is also showing increasing signs after the increase in gas cylinder prices. But more about it later.
Under the current loan scheme of PMUY, customers have option to take hot plate on purchase of first refill or both on loan basis on zero interest rate and it is recovered through subsidy received by the beneficiary.
This recovery, SBI says, forces households to buy cylinders at unsubsidised prices until the loans are repaid, thus discouraging them from purchasing refills. So, this should be phased out, which will only involve a one-time cost of around Rs2,500 crore, it added.
"An increased and graded subsidy may be provided to PMUY and poor consumers which can be tapered off over a period of, say, four years. Providing such a subsidy will encourage them to consume greater quantities of LPG, and over time they are more likely to be willing to pay the normal subsidised price. This will require recurring expenditure for at least some years. For example, a similar scheme is being implemented in Maharashtra by the forest department to incentivise forest dwellers to shift to LPG," SBI says.
A press release by the ministry of petroleum & natural gas (MPNG) has stated that till December 2019 about 87% of PMUY beneficiaries have returned for at least second refill and the total number of refills including installation against PMUY connections has crossed more than 400 million. According to government (as indicated in CAG report), the average refill consumption of PMUY connections has declined to three cylinders per year in FY18-19 from 3.9 cylinders per year in FY16-17.
SBI analysed the state-wise refill data of 59.2 million connections installed till December 2018 since beginning (May 2016) and refill up to 3 June 2019 (means the connections that have completed more than one year).
"As per the data, out of 5.92 crore connections, 24.6% of beneficiaries never came back for second refill, 17.9% consumers refill either one or two cylinders, 11.7% refill three cylinders and 45.8% consumers refill 4 or more cylinders. This indicates that 54.2% of total PMUY consumers consumed up to three cylinders in a year or more. However logic suggests that a family of four requires at least three-four cylinders per year. This means that peoples are not using PMUY cylinders on regular basis," SBI says.
State-wise analysis indicates that Chhattisgarh had the highest number of beneficiaries (in share) who did not return for the second refill (52.3%), followed by Tripura (44.5%), Jharkhand (43.7%), Odisha (35.7%), Assam (36%), and Madhya Pradesh (32.7%). Interestingly, SBI says, the average per capita income of these states is 50% lower than the national average.
"The above analysis proves that though PMUY an excellent step in promoting clean energy to rural households, the PMUY use among the rural households in states with low per capita income may be lower due to continuous increase in LPG prices. The beneficiaries are going back to use of unclean fuel (hazardous to their health also) as soon as the free cylinders get exhausted," the report added.
There are concerns about subsidy amounts being deposited into customer accounts with some delay, which can be a concern for poor consumers with cash flow challenges. Digital technology can easily be leveraged to address this and ensure prompt subsidy credit to consumer accounts. This, according to the report, will promote digital transactions in addition to addressing cash-flow challenges.
"The subsidy net is currently cast wide, with over 85% of customers being subsidised. There is room to improve targeting of subsidy and thus reduce subsidy requirements. Measures to do this include gradually moving to an opt-in rather than opt-out mechanism for most non PMUY and poor consumers," the report added.
SBI suggests that the government should do this with the help of creating a comprehensive merged database using databases of Ayushman Bharat, PM-KISAN, PMJDY, PMUY and MUDRA and then provide these people with maximum four free cylinders in a year. "Even if four crore people are eligible for this then the total cost to exchequer per year will be maximum Rs12,800 crore (4 crore x 4 x Rs800 per cylinder). Adopting such measures would result in increased financial burden, which is also a social investment by the government," it added.
Some measures can be also be taken to offset the increased subsidy like reducing the number of subsidised cylinders per annum to households to nine from the current 12. Average all India consumption is 6.7 cylinders, which would be sufficient for most households.
"Introducing mandatory standards and labelling for LPG stoves will save at least 10% of the LPG consumption. This would reduce subsidy and also have additional benefits such as reducing India’s import bill and saving on GHG emissions. An example, of such is bulb replacement with LED bulbs under UDAY."
"The financial burden of subsidy can be shared with other ministries such as the health ministry) and state governments, since they also gain from improved usage of LPG. Moreover, a nominal ‘smokeless kitchen’ cess could be considered to raise further revenues if required," SBI added.
CPI inflation in January 2020 has increased sharply to 68-month high of 7.59% as against 7.35% in the month of December 2019 and 4.62% in October 2019. If we look at the item-wise inflation during October 2019 to January 2020, there are 10-items that are contributing 94% (or 279 bps) to the overall inflation.
Among these 10 items, seven are from food and fuel groups which contributed 223bps (basis points) and three items are from core group contributing 56bps to the overall inflation. More importantly, in the fuel & light inflation, most of the contribution to the rising prices is coming from LPG and firewood & chips. Interestingly, LPG contribution has increased by 31bps and firewood & chips has increased by 10bps during October 2019 to January 2020.
This is a matter of research what is prompting inflation in firewood and chips to increase at such a rapid pace. Firewood and chips is mainly used in rural areas for cooking purposes and increase in prices of this indicate that demand for it is more than the supply. “Given the fact that almost 96.5% (as on October 2019) of households in India today have an LPG connection due to PMUY, an increase in LPG prices might be the reason, SBI concludes.