A slightly different explainer on the LPG conundrum

In today’s episode on 16th March 2026, we talk about how India’s LPG programme is inadvertently fuelling a parallel black market. Book a FREE call with Ditto https://ditto.sh/vx51ji

• 0:01Speaker 00

  Hello folks, you're tuned in to Finshots Daily. In today's episode, we talk about how India's LPG programme is inadvertently fueling a parallel black market.

• 0:13Speaker 00

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• 0:57Speaker 00

  One could argue that the current LPG shortage for households is due to the US-Israeli Iran war, and that's true to some extent. After all, India is the world's second largest consumer of LPG, and we import 60% of our requirement primarily from Qatar and other Middle Eastern countries. However, India was not always this dependent on LPG. We can largely attribute India's LPG consumption to the PMUI, that is, Ujjwala Gas Scheme, started in 2016. This scheme provided LPG connections to women and persons below the poverty line without any security deposits. And over time, we have had over 32 crore LPG connections in 2024, up from around 15 crore when the scheme started. India is one of the biggest clean energy success stories in the world. The length of our operational natural gas pipelines also increased from around 15,000

• 1:42Speaker 00

  kilometres in 2014 to 25,000 kilometres in 2024. The broader objective was clear: move millions of households away from fuels such as firewood and kerosene and into a cleaner formal energy system. In many ways, that objective has been achieved. Rural households that once had smoky kitchens now have access to cleaner LPG cylinders. In a way, we can also say that this fortunately trickled down to better public health and lower indoor air pollution, and the programme became a flagship example of how subsidy-led energy transitions can scale unlike solar sadly and naturally as demand surged the government has increasingly tried to prioritize domestic supply in periods of tight availability policymakers have nudged distributors to prioritize households receiving cylinders in some regions

• 2:26Speaker 00

  this has meant restricting or slowing the supply of commercial LPG cylinders especially as household refill waiting periods begin to rise so businesses that depend on them mainly restaurants have either shut shop or are scrambling to find whatever LPG cylinders they can and that's exactly where the problem begins you see domestic cylinders are cheaper than commercial cylinders and when commercial supply becomes tighter the price difference creates an opportunity for arbitrage recent police raids across several cities have uncovered LPG diversion rackets operating within this gap investigations in places such as Nagpur and Noida revealed networks in which subsidized domestic LPG cylinders were siphoned off and sold in the black market however enforcement agencies suggest that the issue goes beyond isolated criminal activity

• 3:10Speaker 00

  the CAG that's Controller and Auditor General has pointed to structural weaknesses and how the LPG subsidy program itself has been implemented one concern relates to beneficiary identification according to this audit about forty-two percent of LPG connections were issued solely based on Aadhaar verification without additional cross-checks against other household databases in several cases connections were issued despite incomplete household records or mismatched identities the audit also identified more than twelve point five lakh instances where beneficiary names in the LPG database did not match official census records raising the possibility that some connections may have gone to unintended recipients

• 3:48Speaker 00

  furthermore the system failed to enforce eligibility criteria resulting in one point nine lakh connections being wrongfully released to men instead of the intended women from BPL that is below poverty line households there were also unusually high consumption level among certain beneficiaries some households recorded more than twelve refills per year far above the typical households consumption level in at least one instance distributors issued multiple refills to the same beneficiary on the same day in fact nearly fourteen lakh beneficiaries used between three and forty-one cylinders in a

• 4:20Speaker 00

  Single month. Such patterns strongly suggest that cylinders are being diverted from domestic kitchens into black market supply chains. And even when irregularities are detected, enforcement is not straightforward. India's LPG distribution network is vast, involving thousands of distributors and delivery routes spanning rural and urban regions. Once a cylinder leaves a warehouse and enters a last mile delivery network, tracking its final destination becomes difficult. Monitoring every transaction across such a large system requires far more granular data and oversight than currently exists. And that makes it easy to divert cylinders from their intended use. Consider the price structure. A domestic LPG cylinder may cost around eight to nine hundred rupees without subsidies,

• 5:01Speaker 00

  while a commercial cylinder can cost thousand nine hundred rupees, which is currently over three thousand two hundred rupees in the black market. That difference creates a powerful incentive. If a distributor diverts even a small fraction of domestic cylinders into the commercial market, the margin can be substantial. A few hundred diverted cylinders each month can generate lax in profits. Police investigations suggest that the diversion chain follows a predictable pattern. First, access to subsidized cylinders is secured. Distributors receive quotas intended for household delivery, but rackets may inflate demand by using ghost households or fake registrations to increase their allocations. Second, the gas is siphoned. LPG from domestic cylinders may be transferred into commercial cylinders or sold directly to businesses in smaller containers.

• 5:44Speaker 00

  Third, the diverted cylinders are sold at discount to commercial users. Restaurants, street vendors and small eateries often prefer these unofficial cylinders because they are cheaper than officially priced commercial LPG. Even when sold below the official commercial rate, the distributor can still earn a margin. The system purses because each participant benefits in the short run. The distributor earns the price difference, businesses generally receive cheaper fuel, and enforcement remains difficult because the distribution network is so extensive. The unintended consequence is that genuine households may face longer waiting periods for refills. In some cases, households that cannot obtain official refills quickly enough are pushed toward the same informal market that created the shortage in the first place. And this, folks, reveals a paradox. India's LPG program succeeded in expanding access to

• 6:30Speaker 00

  Cooking fuel but the same subsidy program that supports household has also created a price distortion large enough to sustain a parallel market. Direct benefit transfers were originally designed to reduce leakages by transferring subsidies directly to beneficiaries rather than intermediaries. Yet, as long as domestic cylinders remain significantly cheaper than commercial ones, the incentive for diversion remains embedded in the system. The more durable fix lies in redesigning how the subsidy works. If domestic and commercial cylinders are priced closer to market levels and subsidies are directly transferred to verified domestic customers' bank accounts, the incentive to siphon cylinders would largely disappear. Technology could further strengthen this through improved refill tracking, stronger identity verification, and real-time monitoring of distributor behavior.

• 7:13Speaker 00

  Until that happens, the LPG program will continue to live with an uncomfortable paradox. A policy designed to deliver clean fuel to household kitchens will continue to create opportunities for diversion, where those same cylinders find their way into restaurants and street stalls instead. Ultimately, the LPG diversion problem is not simply about shortages. It reflects how such programs can unintentionally reshape market incentives and post consequences.

• 7:39Speaker 00

  Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.