The nation is struggling amidst a complete lockdown for the past fifteen days that has confined everyone to their homes. With most people at home, there has been a surge in the demand for LPG. On April 9th, the Hindu Business Line released an article stating that the Indian Oil Corporation has increased its LPG imports by 50 per cent to meet the growing demand for LPG cylinders during the lockdown. Moreover, free refills are being provided to PMUY beneficiaries for the month of April, May and June 2020. In the last fifteen days, 3.38 crore LPG cylinders have been distributed among LPG customers in the country.
Liquefied petroleum gas or LPG, is one of the most commonly used cooking fuel in urban households and in the past few years after the launch of the PM UjjwalaYojana that provides free LPG connections to poor households, the share of LPG customers has increased. In order to provide security of fuel supply, LPG cylinders are being provided to customers and PMUY beneficiaries along with other essential goods. Since PMUY beneficiaries also qualify for the direct cash transfer of the subsidy on LPG, the entire amount that they pay for their cylinders or refills are being credited to their bank accounts.
Increasing the supply of cooking fuel in this economic situation of a complete lockdown coupled with a pandemic has left people panic-stricken and clueless. This lockdown came suddenly a fortnight ago, and left the most vulnerable sections of our society battling with loss of employment and lack of money in their hands. Under such dire circumstances, the initiative to increase the availability of LPG for residential purposes is a welcome move, especially for LPG users in the country. However, this increase in supply is going to be met with imports rather than indigenous production.
Indian Oil has already decreased its throughput (amount of crude oil being refined) at most of its refineries by 25-30 per cent. In the midst of a crisis like this, where oil refining, wholesale distribution and retail distribution of LPG come under essential services, that have been kept open by the government, scaling up the supply and distribution of LPG is difficult with a fall in throughput and scarcity of workforce. The only alternative way to pump up supply of LPG to domestic customers is to import the additional LPG required.
Indian Oil is planning to increase LPG imports by 50 per cent to meet the additional demand for LPG in the country. Over the last few months, global oil prices have plummeted and this is expected to give some relief to the major oil importers, India being one of them. However, with the increase in LPG imports the positive effect of the reduction in oil prices may not be significant. Although, LPG imports form just about 5 per cent of the total imports, an increase of 50 per cent in LPG imports now, can lead to a 41 per cent increase in LPG imports compared to January 2020. Moreover, the free supply of LPG cylinders to all PMUY beneficiaries is supposed to continue till June. This implies a huge leakage from government reserves, in the form of a higher import bill as well as greater cash transfers to bank accounts of beneficiaries.
However, this does not mean that the government should not help the poor and vulnerable households at all. These are desperate times, and desperate measures will have to be taken. There will always be a trade-off: whether to spend more in providing people with food, money and fuel so that they feel secured in this lockdown or try to correct the fiscal and trade deficits so that the economy does not sink into a recession. It is indeed a tough choice for the government of any country, especially for a country like India that was already grappling with slowing economic activity and a banking sector failure before the pandemic hit.
The need of the hour is to be prudent. Where on the one hand, providing essentials like food and fuel to households is crucial for the people to remain secured during the lockdown, the responsibility of managing trade and fiscal deficits is also important. In a recent interview to NDTV, RaghuramRajan said that India cannot spend on an economic package that 15 to 20 per cent of GDP, despite the debates about the economic package that the government has extended being insufficient. This statement tries to propose a simple point that spending more is not necessarily good for the economy or the people.
Hence, there needs to be a proper planning regarding how increased supply of LPG is going to be met in the next few months. There is already a massive drain of our monetary resources to help those in the medical profession with proper medical gear and infrastructure, to fight the pandemic. In order to keep the economy from plummeting further and being able to fight the Covid disease with our limited capacity, a choice has to be made, a plan has to be chalked out before spending resources and the execution has to be efficient. In these situations, the need for a cheaper alternative fuel that could have been provided to the poor and vulnerable families instead of imported LPG becomes more prominent. Today, if the rural areas in the country would have cleaner and cheaper alternative for cooking like biogas and urban households would have transitioned to the use of electricity for cooking as well, the pressure on importing LPG would definitely have been lesser. Well, this is the time to think, whether there can be an alternative to LPG that can take some load off of the import bill. As for the economy and the country, both will take some time to heal and bounce back from this calamity.
(The writer is a Senior Research Fellow, Economic Analysis Unit, Indian Statistical Institute, Bangalore.Email- roykrittika26@gmail.com)
