(Ujjwala 2.0 series) Converting Access to Enhanced Usage: Improving LPG Uptake, Affordability, and Supply Security in rural India
By Madhura Joshi
This article is part of a series of commentaries submitted by prominent Indian researchers and their collaborators on how the next phase of the Pradhan Mantri Ujjwala Yojana could better sustain LPG usage among the poor. Click here to access a summary of the major recommendations, along with links to the rest of the series.
The Pradhan Mantri Ujjwala Yojana (PMUY) LPG programme was launched by the Government of India in May 2016 to provide five crore LPG connections to women from BPL households by 2019. One of the more popular schemes of the Government, the target of the Ujjwala scheme has been revised to cover 8 crore households by 2020.
PMUY has expanded the initial list of beneficiaries identified using the Socio-Economic Caste Census (SECC) data, to include additional beneficiaries such as all SC/ST households with BPL cards, and beneficiaries of the Pradhan Mantri Awas Yojana Gramin (housing scheme for rural households). This increase in scope helps addresses some of the challenges of relying solely on SECC data,[2] and helps reach people who were left out in the initial target.
Access to an LPG connection, however, does not determine usage. Field research shows that there are several aspects that determine whether LPG is used more frequently – upfront connection costs, recurring costs, service delivery and supply security at the household-level, geography (determining ease of access to traditional biomass or solid fuels), behavioural and cultural factors (taste, tradition, type of cuisine – rice or roti), and availability of appropriate domestic infrastructure for safe usage (such as a kitchen platform and ventilation). While each of these factors are important, I discuss three important ones – upfront costs, recurring costs, and household supply security – , based on village consultations in Rajasthan, Gujarat in 2018 & 2019, and Maharashtra in 2017.[3]
PMUY addressed the first factor of upfront connection costs by providing a subsidy of INR 1,600 as the cost of connection. However, households still have to pay for the cost of stove and the first refill. PMUY also provides for an interest-free loan of INR 1,600 from the Oil Marketing Companies (OMCs) to enable consumers to meet these costs (the EMI option). OMCs in return are supposed to recover this loan through the subsidy payment for subsequent LPG cylinder refills ordered by the consumer. While connection subsidies are a reasonably good idea, the repayment of the loan, as we shall examine below, has a huge impact on recurring costs of consumers.
The second factor, recurring costs, i.e. payment of subsequent refills of LPG cylinders, are a critical determinant of LPG usage amongst low-income households. Several studies, including the one commissioned by the government also highlight this. PMUY doesn’t account for the importance of recurring costs sufficiently. Even though LPG cylinders are subsidised there are three challenges to wider uptake.
First, households opting to use the EMI option under the Ujjwala scheme, end up realising the benefits of the refill subsidy only after the loan is paid off. For example, the subsidised cylinder cost in Delhi, as of July 2019, is INR 494.35, while the non-subsidised cost is INR 637. This amounts to a subsidy of about INR 142. Assuming prices remain constant, consumers end up paying the full cost of the LPG cylinders for around the first 11 refills, or at least two years (average LPG consumption is reported between 3 and 4.87 refills per annum per PMUY customer).[4] Given that the non-subsidised LPG rates have fluctuated between INR 600-1,000 in the last two years, the burden of high recurring costs is a deterrent for consumers ordering refills. Discussion with households in the village in Rajasthan and preliminary survey analysis show that while several had LPG connections, their average usage was less than two cylinders per annum.
The second issue regarding recurring costs is that many beneficiaries are not intimated or are unaware about the subsidy transfer in their bank accounts. For example, when asked how much does an LPG cylinder cost, most households in the group discussions responded with the upfront non-subsidised payment amount, and not the subsidised cost. In the absence of paid messaging service about deposits and withdrawals offered by the banks, a customer will be able to see the subsidy entry only when they update their passbooks. But even with a passbook entry, the subsidy entry can be missed. Thus, despite the subsidy, households often perceive that they are paying the full cost of the cylinder.
Lastly, the price point of even the subsidised cylinder is often high for the target beneficiaries of the PMUY scheme. According to the analysis in the study commissioned by the Petroleum Planning and Analysis Cell (PPAC), the average reported willingness to pay across states was around INR 350 per cylinder. This is similar to the range reported – INR 220 - 350 per month – during structured field discussion in five villages in Junnar block, Pune district, Maharashtra.
While recurring costs are a big burden for low-income households, solutions can be deployed to overcome this challenge. For instance, reducing and delaying the level of loan re-payment for PMUY customers; increasing the subsidies offered on LPG cylinders for low-income households coupled with awareness campaigns about the subsidy transfer and removing LPG subsidies for high income groups; and encouraging parallel transition of urban households to piped-natural gas or induction-based cooking can help.
Finally, the third factor, supply security plays an important role in household decision-making. The government and OMCs have worked on improving the time taken to supply a refill to around two working days. However, field discussions in all three states suggest that time taken to supply a refill cylinder can range from a few days to over two weeks. In addition, doorstep or even village-level delivery is rare in rural areas. Hence, customers often have to bear the cost of a return journey – both for themselves and the cylinder. Often, this also requires the woman to be more reliant on male members in their families to get the cylinder, especially in societies where women are not allowed to travel on their own. Supply insecurity because of variation in the waiting period for a refill cylinder, additional expense required for transporting the cylinder, and, sometimes, reliance on male members, can deter women from using LPG.
The recent government notification restricting LPG distributors to delivery to only those customers who fall within 15 km will only add to distribution delays. Higher share of customers with low-refill rates are also deterrents to opening new distributorships. In addition, there are also delays in allotting distributorships, though these are being addressed.[5] Exploring community-led or local distribution centres, incentivising timely delivery, and penalising delays which are in the distributors control can help in improving service and the refill rates under PMUY.
The Government has made a good start by recognising clean cooking as a public health necessity and providing LPG connections to a large number of households. However, to convert mere LPG access to more substantive uptake and utilization, requires urgent attention and solutions to the other two important issues – reducing recurring costs and improving service delivery.
(Madhura Joshi (mjoshi@nrdc.org) is with the Natural Resources Defense Council. Views expressed are personal.)
[2] Saxena, N. C. “Has It Ignored Too Many Poor Households,” Economic and Political Weekly, Vol. 50, Issue No. 30, July 2015. https://www.epw.in/journal/2015/30/commentary/socio-economic-caste-census.html; Srinivas, A, “The Targeting Challenge in India’s Welfare Programs,” Live Mint, 08 May 2019, https://www.livemint.com/politics/policy/the-targeting-challenge-in-india-s-welfare-programs-1557294982507.html
[3] Discussions in 2017 in Maharashtra were undertaken during the author’s work for the Centre for Policy Research, Delhi.
[4] Ministry of Petroleum and Natural Gas (MoPNG), “Pradhan Mantri Ujjwala Yojana (PMUY),” Lok Sabha Unstarred Question No. 1537, 01 July, 2019, http://164.100.24.220/loksabhaquestions/annex/171/AU1537.pdf. However, news reports quoting OMC officials suggest that 3 refills per annum is the average, Narayan, S, “5 kg LPG refill to Power Ujjwala Scheme Under Modi 2.0,” Live Mint, 28 May 2019, https://www.livemint.com/news/india/5-kg-lpg-refill-to-power-ujjwala-scheme-under-modi-2-0-1559050401777.html.
[5] Ministry of Petroleum and Natural Gas, “LPG Distribution,” Lok Sabha Unstarred Question No: 1454, 1 July 2019, http://loksabhaph.nic.in/Questions/QResult15.aspx?qref=1570&lsno=17; Jacob, Shine, “Distribution Handicaps a hurdle for Centre’s LPG Ujjwala Scheme,” Business Standard, 12 Julye 2019, https://www.business-standard.com/article/economy-policy/distribution-handicaps-a-hurdle-for-centre-s-lpg-ujjwala-scheme-119071201429_1.html