Cabinet Approves Rs 30,000 Crore LPG Subsidy for Oil Firms

The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved a Rs 30,000 crore compensation package for state-owned oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) — to cover losses from selling domestic LPG at below-cost prices over the past 15 months. This move comes as international LPG prices remained elevated throughout 2024-25 due to global supply disruptions and geopolitical tensions, including ongoing effects from conflicts in Europe and the Middle East that have strained energy markets.

The subsidy will be disbursed in 12 tranches by the Ministry of Petroleum and Natural Gas, ensuring the OMCs can maintain financial stability while continuing to procure crude oil, service debts, and fund capital expenditures. Without this support, the companies faced significant under-recoveries, as they absorbed the cost increases to shield consumers from price volatility. Officials emphasized that this ensures uninterrupted supply of affordable LPG cylinders to over 30 crore households across India, many of whom rely on subsidized cooking gas under schemes like the Pradhan Mantri Ujjwala Yojana (PMUY), which has expanded access to clean fuel in rural areas since its launch in 2016.

High international LPG prices during this period stemmed from factors such as fluctuating crude oil rates, supply chain bottlenecks, and increased demand in Asia. For instance, benchmark LPG prices surged by up to 20-30% in key markets during late 2024, driven by reduced exports from major producers like the US and Qatar amid global economic recovery pressures. Despite these challenges, the OMCs have prioritized domestic availability, aligning with the government's commitment to energy security and consumer protection.

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This approval builds on India's history of LPG subsidies, where previous interventions, such as the Rs 22,000 crore allocation in 2022-23 for Ujjwala beneficiaries, helped mitigate the impact of post-pandemic price spikes. The current package underscores efforts to balance fiscal health with social welfare, preventing any disruption in LPG distribution networks that serve both urban and remote regions.

Looking ahead, the compensation is expected to stabilize the OMCs' operations, potentially averting future price hikes for end-users. It also highlights the government's strategy to insulate vulnerable populations from global energy market fluctuations, while supporting the transition to sustainable cooking fuels through ongoing reforms.

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