"Orders for increasing security deposit from Rs 650 per cylinder to Rs 850 per cylinder were issued last week," a top government official said.
The deposit was lowered from Rs 900 to Rs 700 per cylinder in February 2002 based on cylinder procurement price of Rs 690-750 per cylinder.
It was further reduced to Rs 650 per cylinder in March 2003 as procurement price fell to Rs 550 during mid-2003.
The decision to raise LPG cylinder deposit follows sharp rise in steel prices and some see it as a bold move, particularly in view of assembly elections in Bihar, Jharkhand and Haryana.
The official said the move follows a representation from the oil industry that security deposit be revised annually based on the average annual procurement price of a cylinder.
The industry says it is suffering losses since January 2004 as a cylinder costs more than the security deposit.
Due to frequent hike in steel prices during the last year, a cylinder now costs Rs 1100 to the distributor, including the losses in the north eastern states and Sikkim due to the lower deposit rate of Rs 500 per cylinder.
However, the government has calculated the average price at Rs 870 per cylinder, considering that the cost of replacements are built into the subsidy mechanism and should not be passed on the customer again.