The central government is preparing to approach the Union Cabinet for approval to allocate a fund of ₹32,000 crore to ₹35,000 crore to compensate state-run oil marketing companies (OMCs) for under-recoveries incurred on the sale of subsidised liquefied petroleum gas (LPG) in the current financial year, CNBC-TV18 has learned from senior government officials.The compensation package, aimed at easing the financial strain on companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), is now in its final stages of inter-ministerial consultations. Sources confirmed that the Finance Ministry — not the Petroleum Ministry — will take the lead in placing the proposal before the Cabinet.
“Oil companies are, after all, part of the same government family,” sources said, adding, “The government doesn’t want OMCs to suffer. Compensation will happen soon.”
OMCs are estimated to have suffered cumulative under-recoveries of about ₹30,000 crore on domestic LPG sales between April and December 2024. Despite a spike in global LPG prices due to supply disruptions and heightened international volatility, retail prices of domestic LPG cylinders were kept largely unchanged in India, leading to significant financial stress for the state-run companies.Earlier this year, the Ministry of Petroleum had sought a compensation package of ₹40,000 crore from the Finance Ministry ahead of the Union Budget, citing elevated global energy costs and continued losses from below-market LPG pricing.
The compensation is expected to be funded through the additional revenue generated by a ₹2 per litre hike in excise duty on petrol and diesel, which came into effect earlier in 2025. The increase is projected to yield approximately ₹32,000 crore in FY25. These proceeds will be routed through the Consolidated Fund of India and redirected specifically to support OMCs.A senior official noted that while excise duty collections are generally used for broader revenue purposes, the government can earmark part of it for sector-specific relief. “This method allows the government to absorb the fiscal cost of shielding consumers without directly expanding the subsidy burden or breaching the expenditure budget,” he explained.The Expenditure Finance Committee (EFC) had previously reviewed the proposal in meetings held in March and May. With the key clearances in place, the file is now awaiting Cabinet-level decision.Union Petroleum Minister Hardeep Singh Puri had earlier expressed strong confidence in the Finance Ministry’s willingness to approve the request. “I am 100% confident this issue will be taken up positively. The OMCs will be supported,” he had said.Notably, the proposed compensation will not be restricted solely to under-recovery reimbursement. OMCs will be given flexibility to utilise the funds for infrastructure upgrades or operational improvements, depending on their internal priorities.This move mirrors earlier decisions such as the ₹22,000 crore compensation approved by the government in October 2022 for LPG-related losses in FY22. With Cabinet clearance now likely in the coming weeks, the relief package could provide a timely cushion to OMCs amid ongoing volatility in global energy markets.Also Read: Trump tariffs: 50% on copper, 200% on pharmaceuticals – How it may impact IndiaFirst Published: Jul 10, 2025 12:51 PM IST
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