Centre approves ₹30,000cr support for companies to cover LPG losses
What's the story
The Union Cabinet has approved a budgetary support of ₹30,000 crore for public sector oil marketing companies (OMCs) to cover their losses on cooking gas sales. The move is aimed at compensating Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL). These companies have been selling liquefied petroleum gas (LPG) at prices much lower than international rates.
Financial impact
OMCs's losses on LPG sales
The three OMCs are estimated to have incurred a cumulative loss of over ₹41,000 crore on LPG sales in FY25. In April, Petroleum Secretary Pankaj Jain expressed hope that an appropriate mechanism would be put in place by the government to compensate these companies for their accumulated losses on LPG sales over time.
Revenue expectations
Hike in excise duty on petrol, diesel
The Petroleum Ministry and the OMCs had hoped that the additional revenue from the excise duty hike on petrol and diesel would be used as government support to cover losses on LPG sales. In April, a ₹2-per-liter hike in excise duty was announced, which is expected to generate around ₹32,000 crore for the government annually. The move comes after a one-time grant of ₹22,000 crore was approved for OMCs in October 2022.
Pricing dynamics
India meets its LPG demand through imports
India relies heavily on imports to meet its LPG demand, which is why cooking gas prices are linked to international LPG price benchmarks. In April, along with the excise duty hike on petrol and diesel, LPG prices were hiked by ₹50 per cylinder. This was done to provide some relief to the OMCs on their cooking gas sales.