Government plans to give LPG subsidy Rs 35,000 crore to major oil firm like IOC, BPCL, HPCL

According to sources, the government is expected to provide a subsidy of Rs 35,000 crore to state-owned oil companies Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) to compensate for the losses they incurred from selling fuel in the current fiscal year. 

These three fuel retailers have kept the price of domestic LPG unchanged at Rs 803 for a 14.2 kg cylinder since March 2024, despite an increase in the cost of raw materials. This decision led to significant under-recoveries on LPG sales and a drastic decline in their earnings during the first half of the 2024-25 fiscal year (April to September).

The total under-recovery on LPG sales for the current fiscal year is estimated to be around Rs 40,500 crore. In contrast, the government is likely to provide Rs 35,000 crore in subsidies over two financial years, according to the sources.

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IOC, BPCL, and HPCL are expected to receive Rs 10,000 crore during the current fiscal year 2024-25, with an additional Rs 25,000 crore anticipated in the following year. This subsidy provision is likely to be included in the Union Budget for 2025-26, which Finance Minister Nirmala Sitharaman will present on February 1.

Sources indicate that there is an under-recovery (or loss) of approximately Rs 240 for each 14.2-kg cylinder sold to domestic households at the current price of Rs 803.

The government regulates domestic LPG prices to insulate domestic households from high market rates. Regulated prices are lower than the Saudi CP - the international benchmark used to price domestic LPG. This is because domestic LPG production is not sufficient to meet the local demand and the fuel has to be imported.

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