How to Target LPG Subsidies in India

The report finds that LPG subsidies in Jharkhand are highly regressive, with wealthier households receiving a disproportionate share of benefits due to their higher consumption levels. Testing of volumetric targeting and differential subsidies for Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries failed to significantly improve subsidy incidence, although volumetric limits reduced overall government expenditure. The authors recommend mapping subsidy equity across India and exploring smarter indicators, such as motorbike ownership, to better identify and exclude better-off consumers.

• LPG subsidies in Jharkhand are regressive across both rural and urban areas when measured by expenditure and wealth. In rural areas, the richest 40% of households receive 53% of subsidy benefits, while the poorest 40% receive 28%. In urban areas, the richest 40% receive 54% of benefits, and the poorest 40% receive 27%.
• The regressive nature of the subsidies is driven by consumption patterns: wealthier households consume significantly more LPG than poorer ones. In rural areas, the richest quintile consumes over four cylinders per year, compared to 1.6 for the poorest quintile; in urban areas, the richest consume about eight cylinders versus about three for the poorest.
• LPG affordability remains a critical barrier for the poor. Poorest rural and urban households spend 11.3% and 9.9% of their monthly expenditure on LPG, respectively, compared to 3.1% and 3.6% for the richest quintiles.
• Volumetric targeting, which reduces the annual subsidized cylinder quota from 12 to 9, did not improve the distribution of benefits but did reduce overall government spending by 14% in rural areas and 19% in urban areas.
• Implementing a differential subsidy for PMUY beneficiaries—providing higher subsidies for the first nine cylinders—increased the average benefit per quintile but failed to significantly change subsidy incidence and would substantially increase total costs (168% increase in rural and 128% in urban areas).
• The use of government ration cards as a proxy for poverty is unreliable for targeting, as many wealthy households possess poverty cards and some poor households lack them.
• In Jharkhand, specific assets such as motorbike ownership, number of rooms, beds, and chairs were identified as strong predictors of wealthier households and could potentially be used as indicators to restrict subsidies.

APA

Sharma, S., Moerenhout, T., Aklin, M., & Bajaj, K. (2021). How to Target LPG Subsidies in India. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-04/target-lpg-subsidies-india-jharkhand.pdf

Chicago

Sharma, Shruti, Tom Moerenhout, Michaël Aklin, and Kavya Bajaj. How to Target LPG Subsidies in India. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-04/target-lpg-subsidies-india-jharkhand.pdf.

Wikipedia

{{cite report |last1=Sharma |first1=Shruti |last2=Moerenhout |first2=Tom |last3=Aklin |first3=Michaël |last4=Bajaj |first4=Kavya |title=How to Target LPG Subsidies in India |publisher=International Institute for Sustainable Development |date=May 2021 |url=https://www.iisd.org/system/files/2021-04/target-lpg-subsidies-india-jharkhand.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sharma2021how, author = {Sharma, Shruti and Moerenhout, Tom and Aklin, Michaël and Bajaj, Kavya}, title = {{How to Target LPG Subsidies in India}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = may, url = {https://www.iisd.org/system/files/2021-04/target-lpg-subsidies-india-jharkhand.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }