The government has worked out a fiscally smart arrangement to make good the losses suffered by oil marketing companies on the sale of LPG cylinders at below the cost price. The ₹30,000cr cash compensation approved by the Cabinet on Friday will be paid in 12 tranches to the fuel retailers, with the 1st tranche likely to start in September-October this year.This way, ₹15,000cr is expected to be paid in the current fiscal and the residual amount in FY27 through the new budget, which will be presented in February 2026. Approvals are likely to be sought for withdrawals from the Contingency Fund for FY26, which will reflect later in the supplementary demands for grants, sources explained.
A bullet payment of ₹30,000cr to IOC, BPCL and HPCL would have probably increased the fiscal deficit by 8 basis points, against which staggered payments over FY26 and FY27 are expected to soften the fiscal impact. The government has pencilled 4.4% of the GDP as the fiscal deficit target for this financial year.
The cabinet has also decided to reduce the number of subsidised cylinders to nine under the PM-Ujjwala scheme, without reducing the subsidy per cylinder. While approving the budget outlay of ₹12060 cr for the scheme in FY26, the government has retained the subsidy of ₹300 per 14.2 kg cylinder for up to nine refills, down from the earlier 12.The government says LPG consumption by PMUY Households has improved, from an average per capita consumption of three refills in FY20 to about 4.47 during FY25.
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