Govt likely to compensate oil retailers for LPG losses, may use excise duty gains

The Union government is likely to provide a subsidy of ₹30,000-35,000 crore to state-run fuel retailers to compensate for losses from selling LPG below cost over the past 15 months, PTI reported on Thursday, quoting a senior government official.

The finance ministry is working out the exact under-recovery and mechanism for compensation to Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp, the official said.

In the Union Budget for the 2025-26 fiscal year, presented in February, no provision was made for LPG under-recoveries.

However, in April, the government raised excise duty on petrol and diesel to garner an additional ₹32,000 crore in revenue, which may be used for the subsidy payout.

"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," PTI quoted the official as saying.

Domestic LPG prices in India are regulated and kept lower than international benchmarks such as the Saudi CP to shield households from high market rates, which leads to under-recoveries for fuel retailers.

Total under-recovery on LPG sales for FY25 is estimated at about ₹40,500 crore.

In April, retail LPG prices were also hiked by ₹50 per 14.2-kg cylinder, narrowing the gap between cost and retail prices and reducing under-recoveries in the current fiscal.

The government was earlier considering spreading a ₹35,000 crore subsidy over two financial years, the official added.

Asked if the compensation would be routed through the Consolidated Fund of India, the official said, “Yes, broadly on those lines.”

The proposal will be placed before the Cabinet once finalised.

The government last compensated IOC, BPCL, and HPCL with ₹22,000 crore for under-recoveries in FY22 and FY23 against total losses of ₹28,249 crore.

The official added that once funds are released, it will be up to the companies to decide how to deploy them, including for capital expenditure.