A report from the Economic Research Department of State Bank of India (SBI) titled “Making Ujjwala Yojana the livewire of rural India post the LPG price increase” paints a picture of hope. Firewood and chips are mainly used in rural areas for cooking purposes and increase in prices of this indicates that demand for it is more than the supply. Given the fact that almost 96.5% (October 2019) of households in India today have an LPG connection due to Pradhan Mantri Ujjwala Yojana (PMUY or Ujjwala), an increase in LPG prices might thus be the reason, the SBI report suggests.
The current surge in inflation, the SBI report says, could be broad-based. “If we look at the item-wise inflation during Oct’19 to Jan’20, there are 10-items that are contributing 94% to the overall inflation,” the report reads.
More importantly, in the fuel & light inflation, most of the contribution to the rising prices is coming from LPG and firewood & chips, the report says. Interestingly, LPG contribution has increased by 31 bps and firewood & chips have increased by 10 bps during October 2019 to January 2020, it says.
Against this context, “we analysed the state-wise refill data of 5.92 crore connections installed till December 2018 since the beginning (May 2016) and refill up to 3 June 2019 (means the connections that have completed more than one year). As per the data, 54.2% of total Ujjwala consumers consumed up to three cylinders in a year or more. However logic suggests that a family of four requires at least three or four cylinders per year,” the SBI analyses.
The report says, in fact, though Ujjwala is an excellent step in promoting clean energy to rural households, the Ujjwala use among the rural households in states with low per capita income may be lower due to continuous increase in LPG prices. The beneficiaries are going back to the use of unclean fuel (hazardous to their health also) as soon as the free cylinders get exhausted.
Although the Ujjwala has solved the problem of availability, the affordability barrier still exists. The government should now focus on the ‘affordability’ issue and to achieve this, we suggest a set of measures as follows:
The current loan scheme under Ujjwala allows households the option to take the hot plate on purchase of first refill or both on loan basis from zero interest rate and the same is recovered through subsidy received by the beneficiary. This should be phased out and will only involve a one-time cost of around Rs 2500 crore and will improve the cost of refilling
An increased and graded subsidy may be provided to Ujjwala and poor consumers which can be tapered off over a period of, say, four years. For this, the Government can create a comprehensive merged database using databases of Ayushman Bharat, PM-KISAN, PMJDY, Ujjwala and MUDRA and then provide these people with a maximum of four free cylinders in a year. Even if four crore people are eligible for this then the total cost to exchequer per year will be maximum Rs 12,800 crore (4 crore x 4 x Rs 800 per cylinder). “We can also have a compulsory opt-in scheme for availing subsidies emulating nudge theory in policymaking,” the SBI report prescribes.