Finance Minister Jaswant Singh may spring a surprise in the election year by extending the subsidy on liquefied petroleum gas to the private sector, which will lead to a reduction in prices.

Officials said consumers would benefit from competition between state-owned firms and private players. "A Rs 5-10 per cylinder drop in prices can be expected," an official said.

However, the finance ministry's insistence on reducing the subsidy on LPG, from Rs 45.17 a cylinder now to Rs 22.58 next year, could be a hurdle. The duties on cooking gas, which are as high as 40 per cent of the selling price, may be rationalised.

The officials said since the demand for cooking gas was not expected to grow significantly, the impact of the largesse on government finances would be manageable. The domestic market for cooking gas is growing 8-10 per cent a year.

An analyst said extending the subsidy to private players could pave the way for privatisation of Hindustan Petroleum and Bharat Petroleum. If the subsidy is not extended to the private sector, there could be a controversy during the privatisation of these two oil marketing companies.

Moreover, the risk of additional expenditure is limited because the government will be providing this subsidy to all players only for another year.

LPG marketing companies will earn the subsidy on the basis of the number of cylinders they sell, and so it will be in their interest to lower the manufacturing price to increase market share.

The Cabinet has directed public sector LPG companies to maintain their current prices till March 2004.

About eight new private companies were expected to foray into LPG retailing, the officials said.

Wider subsidy

• Rs 5-10 per cylinder drop in prices can be expected.
• The duties on cooking gas may be rationalised.
• The impact of the largesse on government finances will be manageable.
• The move could pave the way for privatisation of Hindustan Petroleum and Bharat Petroleum.