·The Hindu·15 marks·250–350 wordsEconomyIR

Critically examine the proposal to fund India's strategic fuel reserves through consumer levies on LPG and natural gas.

In this answer
  1. Merits of the levy route
  2. Concerns on critical scrutiny

India's Phase-I Strategic Petroleum Reserve of 5.33 MMT at Visakhapatnam, Mangaluru and Padur covers barely 9.5 days of crude demand [1], with 6.5 MMT more sanctioned under Phase-II [2]. To fund a proposed ten-year, ~$42 billion multi-fuel storage programme, the Ministry of Petroleum and Natural Gas is weighing levies of ₹1.29/kg on LPG and ₹1.43/scm on natural gas [3] — fiscally pragmatic, but contestable on equity and design.

Merits of the levy route

  • Predictable, ring-fenced financing: roughly $460 million annually from LPG and $1 billion from gas [3] insulates a decade-long build from annual budgetary uncertainty.
  • Beneficiary-pays logic: gas and LPG users fund gas and LPG storage, while crude reserves and stocking remain on the Union budget [3].
  • Fills a genuine gap: India has no operating underground natural-gas storage and only two LPG caverns [4]; targeted revenue addresses precisely this deficit.
  • Avoids fiscal crowding-out of health, education and welfare spending.

Concerns on critical scrutiny

  • Regressive incidence: about ₹18 extra per domestic cylinder [3] burdens poor households and risks pushing Ujjwala users back to biomass, undercutting the clean-cooking transition.
  • Works against the gas-based economy push by raising delivered costs for city gas distribution, fertiliser and industry.
  • Storage alone is not security: without shipping, pipeline and regasification capacity, reserves cannot be moved during a crisis [4] — a levy that funds caverns but not logistics buys incomplete insurance.
  • Governance unsettled: ownership, collection mechanism and replenishment rules remain undecided, and the programme is still only under consideration, not approved [3][4].

The proposal is defensible in principle — energy security is a public good, and dedicated funding is more credible than episodic allocations. Its legitimacy, however, rests on design: a statutory, audited fund with a sunset clause, exemptions for subsidised domestic consumers, and simultaneous investment in evacuation infrastructure. Structured thus, the levy can advance both energy security and SDG-7's promise of affordable clean energy.

Sources

  1. 1PIB — Strategic Crude Oil Reserves5.33 MMT Phase-I capacity, three sites, ~9.5 days of cover
  2. 2PIB — Two more facilities of 6.5 MMT under Phase-2 of SPR ProgrammePhase-II expansion at Chandikhol and Padur
  3. 3Business Standard — Govt may impose gas levy to finance $42 billion strategic fuel reserveslevy rates, annual yield, per-cylinder impact, funding split, pending approval
  4. 4The Hindu — Can India build a strategic fuel system?absence of underground gas storage, logistics and replenishment gaps
Practice
12 questions on this article
Check the answer for each question, or reveal all at once.
Practice MCQs →

More from this note

More on Economy