Know the impact of stopping LPG subsidy to high-income group

Mumbai: The move to stop LPG subsidies to high-income consumers with a taxable income of above Rs 10 lakh a year may result in a saving of up to Rs 500 crore for the government, ICRA estimates.

"The savings in LPG subsidies for the government could be up to Rs 500 crore if subsidy is stopped for this category households, which may have consumption of 1.25 to 1.5 times than average consumption," a statement from ICRA said.

Also Read: No more LPG subsidy for consumers with annual taxable income of more than Rs 10 lakh

Further, it may not have an adverse monetary impact for consumers as the current subsidy levels have been low, according to ICRA.

"It may be an opportune time to stop LPG subsidy for the high income consumers as the current subsidy levels on LPG are low (Rs 150-190/cylinder over the last 3 months)," it said.

Also, there could be material savings in LPG subsidies if the plan is implemented on a larger scale with a lower income threshold as LPG is used highly in urban areas, which have large population of consumers who can afford unsubsidised LPG prices, ICRA further said.

Assuming consumption of one cylinder every 45 days, the impact on the household budget could be limited to Rs 100-125 per month at the current level of global crude oil and LPG prices, the statement explained.

However, the outgo could be higher if the oil prices were to recover to elevated levels in future.

As per the release of the Ministry of Petroleum & Natural Gas (MoPNG), the scheme would be initially on the basis of self-declaration basis from January 1.

However, it is believed that the government may later enforce it with income details derived from PAN of consumers.

There could also be significant overlap between the population set of income above Rs 10 lakh and the set of 57.5 lakh consumers who have already given up subsidy voluntarily under 'GiveItUp' campaign of LPG; and hence subsidy savings will be lower to that extent, ICRA observed.

Although the quantum of subsidy savings is minuscule compared to the overall LPG under-recovery in the recent past (Rs 36,600 crore during FY15 and estimated Rs 15,500 crore for FY16), this could be a step in the right direction and the subsidy could decrease materially once the taxable income slab for availing LPG subsidy is reduced progressively, it said.

Further, the benefit of such a step would be more visible over the medium term in a scenario of rise in crude oil prices as the subsidy savings level would be materially higher in case crude oil prices increase from the current low level of approximately USD 35 a barrel.