Energy: Govt may provide LPG subsidy of Rs. 35,000 cr to IOC, BPCL and HPCL
Virendra Pandit
New Delhi: The Government of India is likely to give subsidies worth Rs. 35,000 crores for liquefied petroleum gas (LPG) to the three state-owned distributors—Indian Oil Corporation, Bharat Petroleum Corporation Ltd, and Hindustan Petroleum Corporation Ltd—to make up for losses they incurred on selling the fuel in the current financial year, the media reported on Thursday.
The three fuel retailers have kept the price of domestic LPG unchanged at Rs 803 per 14.2-kg cylinder since March 2024 despite a rise in input raw material cost. This led to under-recoveries on LPG sales, and the resultant drastic fall in their earnings in the April-September 2024 period (H1FY25).
The three companies are expected to get Rs 10,000 crore during the current fiscal, 2024-25, and the remaining Rs 25,000 crore in the next financial year. Finance Minister Nirmala Sitharaman is expected to make provisions for this in the Union Budget for FY26 she will table in the Lok Sabha on February 1.
The total under-recovery on LPG sales for the industry in the current fiscal is estimated at about Rs 40,500 crore. Against this, the government is likely to provide Rs 35,000 crore spread over two financial years, the reports said.
There is an under-recovery (or loss) of about Rs 240 per 14.2-kg LPG cylinder that the state-owned fuel retailers sell to domestic households at the current price of Rs 803.
Prices of domestic LPG are regulated by the government 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. This leads to under-recoveries and consequent losses to the fuel retailers.
From time to time, the government compensates IOC, BPCL, and HPCL for these losses. They were paid Rs 22,000 crore in compensation for the 2021-22 and 2022-23 fiscal years, against their loss of Rs 28,249 crore due to under-recovery.
Of the Rs 40,500 crore under-recovery estimated for the current fiscal, IOC is likely to account for Rs 19,550 crore, HPCL Rs 10,570 crore, and BPCL Rs 10,400 crore.
Domestic LPG prices have remained unchanged since March 9, 2024, when they were cut by Rs 100 per 14.2-kg cylinder just before general elections were announced.
International LPG prices remained moderately high in 2024, even during summers, leading to under-recoveries. The prices are expected to remain elevated during winter months.
To make up for the difference between cost and retail selling price, a Rs 35,000 crore subsidy is likely to be provided, together with taxes.
The Directorate-General of Goods and Services Tax Intelligence (DGGI) had raised a GST demand on the previously paid under-recoveries of Rs 22,000 crore to the three retailers. To ensure full payout accrues to the three without any deductions, the government may provide for any additional tax liability.
