"Govt Announces ₹35,000 Crore LPG Subsidy for IOC, BPCL, and HPCL".

The government is expected to allocate a subsidy of ₹35,000 crore to state-owned Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) to compensate for losses incurred from selling domestic LPG at regulated prices this fiscal year, sources revealed.

The three fuel retailers have maintained the price of domestic LPG cylinders at ₹803 per 14.2-kg since March 2024, despite rising raw material costs. This pricing policy resulted in significant under-recoveries and a sharp decline in earnings during the first half of the 2024-25 fiscal year (April-September).

The total under-recovery on LPG sales for the current fiscal is estimated at approximately ₹40,500 crore. To address this, the government plans to provide ₹35,000 crore in subsidies spread across two financial years, according to sources familiar with the matter.

Of this amount, ₹10,000 crore is expected to be disbursed during the current 2024-25 fiscal year, with the remaining ₹25,000 crore allocated for the 2025-26 fiscal year. Provisions for the latter will likely be included in the Union Budget for 2025-26, which Finance Minister Nirmala Sitharaman will present on February 1.

Sources reported an under-recovery of approximately ₹240 per 14.2-kg cylinder sold to domestic households at the current price of ₹803. Domestic LPG prices are regulated by the government to shield households from high market rates, keeping them below the Saudi CP—the international benchmark for pricing LPG. Since domestic LPG production falls short of local demand, imports are necessary, leading to under-recoveries and losses for the fuel retailers.

The government periodically compensates IOC, BPCL, and HPCL for these losses. Previously, the three companies received ₹22,000 crore in compensation for the 2021-22 and 2022-23 fiscal years, which covered part of the ₹28,249 crore under-recovery for that period.

For the current fiscal, IOC’s estimated under-recovery is ₹19,550 crore, followed by HPCL at ₹10,570 crore, and BPCL at ₹10,400 crore, sources indicated. Domestic LPG prices have remained static since March 9, 2024, when they were reduced by ₹100 per cylinder ahead of the general elections.

International LPG prices remained moderately high throughout 2024, even during the typically low-demand summer months, exacerbating under-recoveries. Prices are anticipated to stay elevated through the winter months, further impacting costs.

To bridge the gap between the cost and retail selling price, the government’s planned ₹35,000 crore subsidy is expected to include provisions for tax liabilities. This is to ensure the full payout reaches the fuel retailers without deductions. The Directorate General of Goods and Services Tax Intelligence (DGGI) had earlier raised a GST demand on the previous ₹22,000 crore compensation paid to the companies, prompting the government to address potential tax implications in the new subsidy package.

HBL