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.   
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    COMMENTS

    rs235m

    1 month ago

    Another bakwaas of BJP. Villagers resort to firewood after consuming the 3 cylinders.

    Ramesh Popat

    2 months ago

    deficit kam karna hai, revenue badhana hai bhai!

    Indian economic revival likely to be shallow: Moody's
    Global credit rating agency Moody's Investor Services on Monday said the Indian economic revival will likely to be shallow.
     
    In its report, 'Coronavirus clouds growth outlook just as the economy showed signs of stabilization', Moody's said the economic revival of India is likely to be shallow.
     
    "India's economy has decelerated rapidly over the last two years. Real GDP (gross domestic product) grew at a meagre 4.5 per cent in Q3 2019," Moody's said.
     
    Improvements in the latest high frequency indicators such as PMI (Purchasing Managers' Index) data suggest that the economy may have stabilized, Moody's said.
     
    While the Indian economy may begin to recover in the current quarter, it will be slower than previously expected, Moody's said.
     
    "Accordingly, we have revised our growth forecasts to 5.4 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively," Moody's said.
     
    Pointing out that the revival of domestic demand - rural and urban, is key for economic momentum, the credit rating agency also said the resumption of credit growth is also important.
     
    "As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks, Moody's said.
     
    The rating agency also said Indian banks were not willing to lend and lower their lending rates despite rate cuts by the RBI.
     
    "As a result, non-food bank credit growth decelerated to 7.0 per cent in nominal terms in December 2019, down sharply from 12.8 per cent a year earlier.
     
    "The deterioration in credit growth to the commercial sector is particularly stark. Nominal credit to industry grew at only 1.6 per cent year-on-year in December 2019, while credit to the services sector registered 6.2 per cent nominal growth, and credit to agriculture and related activities grew 5.3 per cent," Moody's said.
     
    On the impact of the deadly coronavirus spread from China, Moody's said it is still too early to make a final assessment of the impact on China and the global economy.
     
    "We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow at 2.4 per cent in 2020, a softer rate than last year, followed by a pickup to 2.8 per cent in 2021," the rating agency said.
     
    According to Moody's assumptions, the virus outbreak will cause disruption in Q1 economic activity.
     
    "Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2.
     
    "At present, China's economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains," Moody's said.
     
    Moody's also said the effects on the global economy could compound if the rate of infection does not abate and the death toll continues to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Ramesh Popat

    2 months ago

    prediction may not be real.

    In Search of That Elusive Growth: Inflation Excluding Vegetables up by 92 Basis Points
    Inflation based on consumer price index (CPI) clocked more than 7% growth for the second consecutive month. CPI inflation rose sharply to 68-month high to 7.59% in January 2020 as against 7.35% in the month of December 2019 solely on account of persistent high inflation in vegetables. In fact, excluding vegetables, CPI has jumped to 4.74% in January 2020 from 3.82% in December 2019. This indicates that the recent surge in CPI inflation is becoming more broad-based with core CPI jumping by 67 basis points (bps) in the past two months, says a research note.
     
    In the report, Dr Soumya Kanti Ghosh, group chief economic adviser of State Bank of India (SBI), says, "It is an irony that first, despite the buffer stock norm of 30.7 million tonne of rice and wheat, total central pool stock was 56.4 million tonne as on 31 December 2019, but that has not prevented cereal prices to jump.
     
    "Second, as the data shows, 30% crops, out of the total rabi and kharif crops for which minimum support price (MSP) were announced (2019-20 season), are still trading below their MSP in the wholesale market! The contribution of core inflation items (driven by telecom tariff jump) was around 56 basis points or 19% during the same period. The contribution of fuel was around 41 basis points or 14%. Thus, inflation seems to be becoming broad based."
     
    "The imminent fear that is looming now is the increase in protein inflation going forward after such a whopping increase in vegetable prices. Our Granger casualty tests shows that increase in vegetable inflation Granger causes increase in protein inflation with a lag of two-months. Inflation is expected to remain high next two months, close to 7% thus averaging above 7% for fourth quarter (Q4) FY2020.
     
    Inflation will slide down gradually in FY2021 and could slid to less than 3% in December 2020. We believe Reserve Bank of India (RBI) will stay for an extended pause in calendar year 2020," he added. 
     
    In January 2020, prices of vegetables (including the onion) rose sharply to 50.19%. The recent surge in CPI inflation is solely due to exorbitant increase in vegetable prices. The weighted contribution of vegetables in overall CPI has declined in January 2020 compared to December 2019.
     
    Within the food category, potato, onion, milk, garlic, cereals contributed 183 basis point increase in headline inflation or 60% contribution over the past four months.
     
    However, once again, SBI has raised questions on the CPI as measured by the central statistical organisation (CSO). It says, "There is significant difference between the share of food and beverages (30%) in the private final consumption expenditure (PFCE), published by the national account statistics (NAS), and the weights derived from the CES at 45.86%. Subsequently, the episodic spikes in CPI inflation, which is largely contributed by rise in food and vegetable prices (as it is happening currently), makes the RBI decision difficult. Interestingly, if we reduce the weightage of food in CPI to 30%, the headline CPI declines to 5.48% from 7.59% in January 2020."
     
      
    Coming to economic growth, SBI says, after positive growth in November 2019, index of industrial production (IIP) growth in December last year again turned slight negative -0.3% owing to significant drag in manufacturing sector which contracted 1.2%. 
     
    Electricity also witnessed a modest -0.1% de-growth while mining growth was positive at 5.4%. The decline in capital goods' growth since January 2019 with significant de-growth in December 2019 at -18.2% does not portend well for the economy, SBI says. 
     
    It says, "As per the results published for nine months of FY2020 by around 1,746 listed entities, we observe a measly top line growth of around 2%, whereas bottom line and EBIDTA improved by around 8% and 9% respectively, thanks to banking and finance sector. However, excluding banking, finance, insurance and refineries, around 1,434 entities, reported almost flat top line and negative growth in EBIDTA and PAT, which de-grew by around 6% and 9% respectively.
     
    In addition, during the first nine months (9M) of FY2020, credit ratio deteriorated across sectors when compared with same period last year. Overall credit ratios from all rating agencies decreased by 510 bps to 0.35 during 9MFY2020 as compared to 0.86 during 9MFY2019. 
     
     
    "We have analysed selected sectors (see table) and observed high downgrades as compared to upgrades. For example, in FMCG sector (consumer staples) 780 entities were downgraded as compared to upgrades of only 308 entities. Similarly, in Iron and Steel and constructions sector also, the total number of downgrades are 210 and 666 as compared to upgrades of 125 and 181 respectively during 9MFY2020," the research report added.
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