Modi LPG Scheme GREAT idea but little impact on Consumption Growth

Reams of pages have been written on the fabulous Ujjwala Yojana. The scheme that provides for LPG connections for Free to citizens below poverty line. The scheme while meant for the poor was targetted towards the voters in UP during the last 12 months. See my article here. Uttar Pradesh made up for 12% of deprived households while receiving 31% of the connections (about 5 million). The argument put forth by many experts was that Ujjwala scheme enabled the BJP to win Uttar Pradesh. While I have not been able to unearth such evidence, I can go back to past instances of Government programmes apparently having won elections for the Congress party (NREGA), however no statistical evidence was eventually found as the data showed that the Congress party had done poorly amongst NREGA covered districts in 2009. Leaving aside the politics a bit, I wanted to evaluate the real impact of Ujjwala scheme amongst deprived households.

Using NFHS-4 data I was able to estimate that the number of households with LPG connections could be in the range of 115m to 130m households (43.8% penetration in 2015-16, 275m households). I will take the upper end of this range. The minister has said that close to 19m connections were given out between July 2016 and March 2017.

The growth is as remarkable as claimed with nearly 15% growth over the previous year. Now, using PPAC LPG Consumption data, I attempt to see if the massive jump in connections also translated to massive jump in consumption

In 2016-17, there is a larger increase than the previous two years. While it is much higher than 2015-16, it is almost on par with 2014-15. Nothing in these charts indicates that there has been a 15% increase in connections. If at all, the consumption by new connections appears to be but a blimp in the overall scheme of things. Even if we assume that the base number is much higher, let us say it is as high as 61% (Coverage) as indicated by the honorable minister, that would translate to a growth of 11% in connections. Given the fact that the increase in consumption was 10.4% in 2014-15 with smaller increase in connections (2-3% growth per annum if one looks at NFHS-4 data) , one would assume that the jump in consumption in 2016-17 should have been much higher. In fact, looking at the monthly data, one sees the following trends-

August - 18.7%, September - 15.4%, November - 15.7%, January - 16.4%

These % look more in line with a massive increase in connections. Therefore I have an alternate explanation.

While the connections may have been a good thing, the cost of LPG cyinders (subsidised) continues to be quite high. The cooking habits too in these households are limited by low incomes. It is therefore likely that the LPG connection is being used sparsely and not aggressively as rest of the households. In fact a survey last year confirms this

The largest rural energy access survey of India which was conducted last year by the Council on Energy, Environment and Water (CEEW) and the Department of Political Science at Columbia University, shows that as many as 95 per cent of LPG-deprived households cite their inability to pay as a barrier to their adopting LPG.

One challenge is the high monthly expenditure incurred which 88 per cent of LPG-deprived households in the survey cited as a barrier. However the high recurring cost is not only a problem of purchasing capacity but also a perception and cash-flow issue. An increasing number of rural households rely on commercially procured biomass to meet their cooking energy needs. The rural informal markets for firewood and dung cakes are thriving across India. CEEW analysis suggests that households that buy some or all of their biomass end up paying more than those who rely on LPG. Thus, LPG would be an economically attractive proposition for such households. However, those relying completely on free-of-cost biomass (about 50-60 per cent of the rural population) would possibly opt for the subsidised connection, but would not spend on refilling cylinders regularly. We need to focus on reducing this gap between adoption and sustained use.

In other words, while the Government has done an exemplary job of providing new connections, it needs to do more on income growth and change in attitudes which will then enable growth in LPG usage and provide for better health of our familie