As Centre Slashes LPG Cylinder Cost, Here's A Look At How Prices Are Calculated For Consumers

Prime Minister Narendra Modi announced a price reduction of Rs 200 in gas cylinders as a gift for the women in the country on the occasion of Raksha Bandhan.

The government uses the measure called Import Parity Price (IPP) to determine the LPG prices.

Source : Getty

The Union government has announced a price reduction in gas cylinders on Tuesday. The decision has been taken to provide some relief to the consumers and the government has reduced the price of LPG gas cylinders by Rs 200 for all consumers.

Prime Minister Narendra Modi made the announcement as a Raksha Bandhan gift for the women in the country. In addition to the Rs 200 subsidy provided under the government’s Pradhan Mantri Ujjwala Yojana, the recipients of the scheme will get an additional Rs 200 subsidy as per the announcement. Now, let's take a look into how the government decides on the price of Liquified Petroleum Gas (LPG).

PM Sh @narendramodi Ji has taken the bold step of reducing LPG cylinder price by ₹200/cylinder for all LPG consumers (33 crore connections)
PM Ujjwala Yojana consumers will continue to the get the subsidy of ₹200/cylinder in their accounts.#CabinetDecisions pic.twitter.com/wiPefRwe5n

— Hardeep Singh Puri (@HardeepSPuri) August 29, 2023

The government decides the price of LPG on the basis of LPG prices in the global market. It uses the measure called Import Parity Price (IPP) to determine the LPG prices. India uses the IPP as the majority of it’s consumption is done through imports. 

The IPP assumes that LPG is imported within the country. It is based on the LPG price of Saudi Aramco, the world’s largest producer, and factors in costs like the free on board (FOB) price, custom duty, insurance, ocean freight price, port costs, etc. to decide the price. These costs are calculated in dollars and then, converted to rupees. 

Price fluctuations in crude oil also affect the international price of LPG. Inland prices like freight costs, oil company’s margins, bottling costs, dealer commissions, marketing expenses, and the Goods and Services Tax (GST) are also taken into account. These costs together provide the retail selling price for non-subsidised LPG cylinders for consumers across the country.

There are certain factors that influence LPG prices. These include global changes in LPG prices, the depreciation of the rupee which leads to an increase in prices, and geopolitical tensions, like the Ukraine-Russia war really caused an impact on LPG and crude prices, among others. Government schemes like the Pradhan Mantri Ujjwala Yojana also have an impact on the prices. 

Under the PMUY, the government has promised subsidised cooking gas cylinders to women belonging to underprivileged and economically weaker sections of society, with a support of Rs 1,600 per connection. The government planned to release 8 crore LPG connections to deprived households under the scheme. As part of the Ujjwala 2.0 scheme, the government allocated an additional 1.6 Crore LPG Connections under the scheme with special facility to migrant households. The scheme claims to have a consumer base of 9.59 crore people in the nation.