The finance ministry is working out the exact under-recovery or loss incurred by the state-run oil companies including Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL) from LPG being sold at below cost over the past 15 months, informed a senior official.
The subsidy to be paid by the government may be to the tune of ₹30,000-35,000 crore, he added, and said the ministry will also come up with a mechanism to compensate the losses.
In the Union Budget for 2025-26 fiscal (April 2025 to March 2026) presented on February 1, the government had made no provision to compensate for the under-recoveries. However, in April, the government raised excise duty on petrol and diesel to garner additional ₹32,000 crore in revenues which may now be used to compensate for LPG under-recoveries.
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“Oil marketing companies (OMCs) are part of the government family. Compensation will happen. We are evaluating how much is under recovery and looking at the modalities for compensating them,” said the official.
Since the prices of domestic LPG are regulated by the government in order to insulate domestic households from high market rates, regulated prices are lower than the Saudi CP – the international benchmark used to price domestic LPG.
Domestic LPG production is not sufficient to meet the local demand and the fuel has to be imported, leading to under-recoveries and consequent losses to the fuel retailers.
The total under-recovery on LPG sales for the industry in the 2024-25 fiscal year is estimated at about ₹40,500 crore.
A price hike of ₹50 on retail LPG cylinders of 14.2 kg also helped narrow the gap between the cost and the retail selling price, thereby reducing the under-recoveries in the current fiscal.
Earlier, the government was toying with the idea of providing ₹35,000 crore in LPG subsidy in total, spread over two financial years.
However, the official further said that they are evaluating the modalities of how the collections from the recent excise duty hike are to be routed into the compensation amount.
He affirmed that the compensation to OMCs may be routed through the consolidated fund of India.
The government, from time to time, compensates IOC, BPCL and HPCL for these losses. The three were previously paid ₹22,000 crore compensation for the 2021-22 and 2022-23 fiscal years. This was against ₹28,249 crore of under-recovery.
The official added that once the proposal is firmed up, it would be placed before the Cabinet for approval. When the funds are released to the oil marketing companies, it will be their prerogative on how they want to deploy the funds, including in capex.
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