The Centre's LPG subsidy bill is expected to exceed Rs 1 lakh crore in FY27, creating a funding shortfall of nearly Rs 70,000 crore over the Rs 30,000 crore allocated in the Union Budget, as both the government and oil marketing companies (OMCs) continue to shoulder a larger share of rising fuel and LPG costs, according to a report by PL Capital.
The report noted that the FY27 Budget allocation of Rs 300 billion for LPG subsidy has already been exhausted. Based on the current pace of spending, the total LPG subsidy outgo could cross Rs 1 trillion, with the subsidy burden currently estimated at around Rs 490 per cylinder.
It stated, "We estimate that the subsidy allocation of Rs 300bn in budget for FY27 has been long overshot, and current LPG subsidy loss per cylinder is Rs 490 and at current run rate LPG subsidy might cross Rs 1 trillion."
According to the report, the government and OMCs are absorbing a larger share of higher fuel and LPG prices amid persistent uncertainty stemming from the ongoing war-related situation.
The report also pointed to a significant rise in overall subsidy expenditure during the first two months of FY27. Total spending on key subsidies reached Rs 755.4 billion during April-May 2026, compared with Rs 512.5 billion in the corresponding period of the previous year, reflecting a 47 per cent year-on-year increase.
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Food subsidy increased to Rs 408.0 billion from Rs 279.9 billion, registering a 46 per cent annual rise. Nutrient-based fertiliser subsidy climbed to Rs 60.1 billion from Rs 43.1 billion, up 39 per cent, while urea subsidy rose to Rs 284.5 billion from Rs 189.5 billion, marking a 50 per cent increase. Petroleum subsidy stood at Rs 2.8 billion during the period, compared with zero in the same period a year earlier.
PL Capital attributed the higher subsidy outgo largely to uncertainty linked to the war-related situation, which has intensified pressure on the government's fiscal position. On capital expenditure, the report expects the government to adopt a cautious approach during the first half of FY27, with priority likely to remain on containing the fiscal deficit rather than increasing borrowings.
Capital expenditure grew 13 per cent year-on-year to Rs 2.5 trillion by May 2026, compared with Rs 2.2 trillion during the same period last year. However, the report pointed out that the comparison comes against a high base, as FY26 capital spending had been front-loaded, resulting in a sharp 54 per cent year-on-year increase during the corresponding period.
The report added that rising subsidy obligations, along with the government's emphasis on fiscal discipline, are likely to keep capital expenditure restrained during the first half of the current financial year.
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