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Last week, oil-marketing companies (or OMCs, such as Indian Oil Corporation Limited and Hindustan Petroleum Corporation Limited) raised the price of domestic LPG in the country. [1] The price of a domestic cylinder (14.2kg) has increased from Rs 714 in January 2020 to Rs 858.5 in February 2020. This is a 20% hike in the price of a LPG cylinder. Note that this is the sixth consecutive month for which LPG prices have been revised upwards. Figure 1 shows the variation in price of a domestic (non-subsidised) LPG cylinder in Delhi over the last year.
Figure 1: Variation in price of non-subsidised domestic LPG cylinder
Sources: Indian Oil and Corporation Limited; PRS.
How is the price of LPG cylinders determined?
LPG prices are revised every month. The price is determined by public sector OMCs namely, Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, in line with the changes in the international market prices and other market conditions. [2] The international market price affects the import parity price of petroleum products (the price that importers pay for import of product at the respective Indian ports). This includes exchange rate, ocean freight, insurance and customs duty among others.
The Ministry of Petroleum and Natural Gas has stated that the recent hike in the price of LPG cylinder is due to a sharp rise in international LPG prices during January 2020 (from USD 448/Metric Tonne to USD 567/Metric Tonne). [3]
What is the difference between the price of a subsidised and non-subsidised cylinder?
The price determined by the OMCs reflects the price of a non-subsidised domestic LPG cylinder. The government modulates the effective price to provide subsidised LPG cylinders to consumers under the 'Pratyaksha Hastaantarit Laabh' direct benefit transfer (or DBT-PAHAL) scheme. [4] Under the scheme, a consumer (with annual income of up to Rs 10 lakh) can avail DBT cash-subsidy for a LPG cylinder. The beneficiaries buy LPG cylinders at market rate and subsequently receive subsidy directly in their bank accounts.
With the recent increase in price of a LPG cylinder, the government has increased the subsidy amount for PAHAL consumers from Rs. 153.86 per cylinder to Rs. 291.48 per cylinder (89% increase).3 This is done to ensure that the subsidized LPG consumers are insulated from the volatility of LPG prices in the international market. Table 1 shows the amount of subsidy provided by the government for LPG cylinder. Note that price of a subsidised cylinder has increased from Rs 494 to Rs 567 (14.8%) from February 2019 to February 2020.
Table 1: Difference between the price of subsidised and non-subsidised LPG cylinder
As on |
Non-subsidised cylinder |
Subsidised cylinder |
Subsidy |
February 2018 |
Rs 736.00 |
Rs 495.63 |
Rs 240.37 |
February 2019 |
Rs 659.00 |
Rs 493.53 |
Rs 165.47 |
February 2020 |
Rs 858.50 |
Rs 567.02 |
Rs 291.48 |
Sources: Unstarred Question No.1211, February 13, 2019, Ministry of Petroleum and Natural Gas, Rajya Sabha.
Note: Prices are at Delhi.
How many people avail the subsidy on LPG cylinders?
Currently, there are a total of 27.16 crore LPG (domestic) connections in the country.3 Of these, 26.12 crore (94%) consumers are beneficiaries under the PAHAL scheme, and therefore, can avail LPG cylinders at subsidised rates. Note that, under the scheme, a maximum of 12 subsidised cylinders per year can be availed under one connection. Further, a household cannot have more than one connection.
What is the cost of subsidy for the government?
The subsidy on domestic LPG is met through the budgetary grants of the Ministry of Petroleum and Natural Gas. In 2020-21, the government is estimated to spend Rs 37,256 crore on LPG subsidy. This includes Rs 35,605 crore for DBT-PAHAL and Rs 1,118 crore for Pradhan Mantri Ujjwala Yojana. This is an increase of 9.3% from the expenditure in 2019-20 of Rs 34,086 crore (revised estimate). Note that LPG subsidy constitutes 87% of the Ministry's total budget (Rs 42,901 crore).
Figure 2 below shows the year-wise expenditure on LPG subsidy, and as a proportion of the total budget of the Ministry from 2015-16 to 2020-21.
Figure 2: LPG subsidy over the years (2015-16 to 2020-21).
Sources: Union Budget Documents; PRS.
For more trends and analysis related to the finances of the Ministry of Petroleum and Natural Gas, see here.
[1] "LPG price hiked by Rs 144.5 per cylinder", Economic Times, February 12, 2020, https://economictimes.indiatimes.com/industry/energy/oil-gas/lpg-price-hiked-by-rs-144-5-per-cylinder/articleshow/74096745.cms.
[2] Frequently Asked Questions (FAQ), Petroleum Planning and Analysis Cell, https://www.ppac.gov.in/content/137_3_Faq.aspx.
[3] "LPG Price is Derived based on International Market Price", Press Information Bureau, Ministry of Petroleum and Natural Gas, February 13, 2020.
[4] PAHAL-Direct Benefits Transfer for LPG (DBTL) Consumers Scheme, Ministry of Petroleum and Natural Gas, http://petroleum.nic.in/dbt/whatisdbtl.html.
Each year during the Budget Session, Rajya Sabha examines the working of certain ministries. This year it has identified four ministries for discussion, which includes the Ministry of Home Affairs. In light of this, we analyse some key functions of the Ministry and the challenges in carrying out these functions.
What are the key functions of Ministry of Home Affairs?
The Ministry of Home Affairs (MHA) is primarily responsible for: (i) maintenance of internal security, (ii) governance issues between the centre and states, and (iii) disaster management. It also discharges several other key functions that include: (i) border management, (ii) administration of union territories, (iii) implementation of provisions relating to the official languages, and (iv) conducting the population census every ten years.
Under the Constitution, ‘public order’ and ‘police’ are state list subjects. The MHA assists the state governments by providing them: (i) central armed police forces, and (ii) financial assistance for modernising state police forces, communication equipment, weaponry, mobility, training and other police infrastructure.
What is the role of the central armed police forces?
The MHA manages seven central police forces: (i) Central Reserve Police Force (CRPF) which assists in internal security and law and order, (ii) Central Industrial Security Force (CISF) which protects vital installations (like airports) and public sector undertakings, (iii) National Security Guards which is a special counter-terrorism force, and (iv) four border guarding forces, namely, Border Security Force (BSF), Indo-Tibetan Border Police (ITBP), Sashastra Seema Bal (SSB) and Assam Rifles (AR).
As of January 2017, the total sanctioned strength of the seven CAPFs was 10. 8 lakhs. However, 15% of these posts (i.e., about 1.6 lakhs posts) were lying vacant. The vacancy in the CAPFs has remained above 7% for the last five years (see Table 1). In 2017, the Sashastra Seema Bal had the highest vacancy (57%). The CRPF, which accounts for 30% of the total sanctioned strength of the seven CAPFs, had a vacancy of 8%.
How does MHA assist the police forces?
In Union Budget 2018-19, Rs 1,07,573 crore has been allocated to the Ministry of Home Affairs. The Ministry has estimated to spend 82% of this amount on police. The remaining allocation is towards grants to Union Territories, and other items including disaster management, rehabilitation of refugees and migrants, and the Union Cabinet.
The MHA has been implementing Modernisation of Police Forces (MPF) scheme since 1969 to supplement the resources of states for modernising their police forces. Funds from the MPF scheme are utilised for improving police infrastructure through construction of police stations, and provision of modern weaponry, surveillance, and communication equipment. Some other important objectives under the scheme include upgradation of training infrastructure, police housing, and computerisation.
The scheme has undergone revision over the years. A total allocation of Rs 11,946 crore was approved for the MPF scheme, for a five-year period between 2012-13 to 2016-17. Following the recommendations of the 14th Finance Commission (to increase the share of central taxes to states), it was decided that the MPF scheme would be delinked from central government funding from 2015-16 onwards. However, in September 2017, the Union Cabinet approved an outlay of Rs 25,060 crore under the scheme, for the period 2017-18 to 2019-20. The central government will provide about 75% of this amount, and the states will provide the remaining 25%.
The Comptroller and Auditor General (CAG) has found that weaponry in several state police forces is outdated, and there is a shortage of arms and ammunitions. An audit of Rajasthan police force(2009-14) found that there was a shortage of 75% in the availability of modern weapons against the state’s requirements. In case of West Bengal and Gujarat police forces, CAG found a shortage of 71% and 36% respectively. Further, there has been a persistent problem of underutilisation of modernisation funds by the states. Figure 1 shows the level of utilisation of modernisation funds by states between 2010-11 and 2016-17.
What are the major internal security challenges in India?
Maintaining internal security of the country is one of the key functions of the MHA. The major internal security challenges that India faces are: (i) terrorist activities in the country, (ii) cross-border terrorism in Jammu and Kashmir, (iii) Left Wing Extremism in certain areas, and (iv) insurgency in the North-Eastern states.
Between 2015 and 2016, the number of cross-border infiltrations in Jammu and Kashmir increased by almost three times, from 121 to 364. On the other hand, incidents of insurgency in Left Wing Extremism areas have decreased from 1,048 in 2016 to 908 in 2017.
The Standing Committee on Home Affairs noted in 2017-18 that security forces in Jammu and Kashmir are occupied with law and order incidents, such as stone pelting, which gives militants the time to reorganise and perpetrate terror attacks. The Committee recommended that the MHA should adopt a multi-pronged strategy that prevents youth from joining militancy, curbs their financing, and simultaneously launch counter-insurgency operations.
In relation to Left Wing Extremism, the Standing Committee (2017) observed that police and paramilitary personnel were getting killed because of mine blasts and ambushes. It recommended that the MHA should make efforts to procure mine-resistant vehicles. This could be done through import or domestic manufacturing under the ‘Make in India’ programme.
What is the MHA’s role in border management?
India has a land border of over 15,000 kms, which it shares with seven countries (Pakistan, China, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan). Further, it has a coastline of over 7,500 kms. The MHA is responsible for: (i) management of international lands and coastal borders, (ii) strengthening of border guarding, and (iii) creation of infrastructure such as roads, fencing, and lighting of borders.
Construction of border outposts is one of the components of infrastructure at border areas. The Standing Committee on Home Affairs (2017) noted that the proposal to construct 509 outposts along the India-Bangladesh, and India-Pakistan borders had been reduced to 422 outposts in 2016. It recommended that such a reduction should be reconsidered since 509 outposts would reduce the inter-border outpost distance to 3.5 kms, which is important for the security of the country.
How is coastal security carried out?
Coastal security is jointly carried out by the Indian Navy, Indian Coast Guard, and marine police of coastal states and Union Territories. The MHA is implementing the Coastal Security Scheme to strengthen the marine police of nine coastal states and four Union Territories by enhancing surveillance, and improve patrolling in coastal areas. Under this scheme, the Ministry sought to construct coastal police stations, purchase boats, and acquire vehicles for patrolling on land, among other objectives.
The Standing Committee on Home Affairs (2017) observed that the implementation of Phase-II of this scheme within the set time-frame has not been possible. It also noted that there was lack of coordination between the Indian Navy, the Indian Coast Guard, and the coastal police. In this context, the Committee recommended that the Director General, Indian Coast Guard, should be the nodal authority for coordinating operations related to coastal security.