Centre To Give Rs 35,000 Crore LPG Subsidy for IOC, BPCL, HPCL: Reports
The three oil marketing companies are reportedly losing about Rs 240 per 14.2-kg cylinder sold at the current price.
Centre to give LPG Subsidy for IOC, BPCL, HPCL latest news: In a bid to offset losses incurred by state-owned oil companies, the government is set to provide a subsidy of Rs 35,000 crore to Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL). This move aims to compensate for the under-recoveries resulting from selling domestic LPG at regulated prices, sources revealed.
Since March 2024, the price of a 14.2-kg LPG cylinder has been capped at Rs 803, despite a significant rise in raw material costs. This freeze has led to substantial under-recoveries, with the total industry loss estimated at Rs 40,500 crore for the current fiscal year (2024-25).
Sources indicate that Rs 10,000 crore of the subsidy will be disbursed during the current fiscal year, with the remaining Rs 25,000 crore allocated for the next financial year. Finance Minister Nirmala Sitharaman is expected to include the provision for this subsidy in the Union Budget for 2025-26, scheduled to be presented on February 1.
Under-Recoveries and Losses
The three oil marketing companies are reportedly losing about Rs 240 per 14.2-kg cylinder sold at the current price. Domestic LPG prices are regulated to shield households from volatile global market rates. However, with domestic production insufficient to meet demand, the gap between retail prices and the international benchmark (Saudi CP) has resulted in significant financial losses.
For the current fiscal year, IOC is estimated to account for Rs 19,550 crore of the under-recoveries, while HPCL and BPCL are expected to incur losses of Rs 10,570 crore and Rs 10,400 crore, respectively.
The government previously compensated the companies with Rs 22,000 crore for losses incurred in 2021-22 and 2022-23, though this fell short of the Rs 28,249 crore in total under-recoveries for those years.
Outlook and Tax Considerations
With international LPG prices remaining high throughout 2024 and expected to rise further during winter, the government’s subsidy aims to bridge the gap between production costs and regulated retail prices.
Additionally, the Directorate General of Goods and Services Tax Intelligence (DGGI) had raised a GST demand on the earlier Rs 22,000 crore compensation provided to the oil companies. To ensure the new subsidy is fully realized, the government may include provisions to account for potential tax liabilities, sources said.