Behind the LPG crisis

Who suffers in the end? A common man.



It is difficult to understand the logic behind recent hike in LPG prices. It has been argued that government wants to reduce fiscal deficit, the difference between the expenditure and revenue of Government over a time period, as the public sector OMCs (Oil Marketing Companies) have been making losses by selling LPG at subsidized prices which the government has been financing.
If we believe this claim, what are going to be the implications of LPG price rise? Simple Demand Supply analysis shows that demand for LPG will fall sharply because of steep rise in prices. That means, the sale of LPG cylinders will fall and hence OMCs won’t be able to sell as many LPG cylinders as they used to. Given the installed capacity of these plants, the production will have to be reduced, which means the OMCs will still be making losses and the government will keep subsidizing them.
The price rise will save Government some money. The fall in demand for LPG will mean reduced import bill on account of reduced imports. Government wants to reduce the demand of imported LPG and cater to the demand by the domestic production. Given this scenario, why should the international price of LPG bother Government when most of the production takes place domestically or by domestic units? This fall in demand won’t be by the affluent class of society but by the middle income class of society and poor people who had recently shifted to LPG. The cap of six cylinders per family has been made across the board. Ambani and BPL people have finally become equal; both are getting six cylinders at subsidised rates! If the government is actually concerned about the fiscal deficit and wants to reduce it, why should the rich people be given six LPG cylinders at subsidized rate? Doesn’t a BPL or lower middle income person who supports a family of 10 deserve the subsidised cylinders provided to Ambani or Birla?
The game of financial prudence that the government is playing is beyond the common man’s logic. Common man is at the receiving end. He will shift to the traditional sources of energy. Imagine in Kashmir the per capita income is Rs. 24, 214 as per the latest data available. And if out of that suppose a person has to buy eight more cylinders per year at current market price, that means he is spending more than thirty per cent of his annual income on LPG. Good Luck aam aadmi!

(Malik Altaf Hussain has an M.A.(Development Economics) from South Asian University(SAARC), New Delhi. Feedback at

Lastupdate on : Thu, 8 Nov 2012 21:30:00 Makkah time
Lastupdate on : Thu, 8 Nov 2012 18:30:00 GMT
Lastupdate on : Fri, 9 Nov 2012 00:00:00 IST

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