The central government is planning to seek Cabinet approval for a compensation package worth Rs 32,000–35,000 crore to reimburse oil marketing companies (OMCs) for losses from selling subsidised LPG in the current financial year, according to senior government officials.

This financial support is intended to alleviate the burden on Indian Oil Corporation (IOC), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL), which are estimated to have incurred under-recoveries of approximately Rs 30,000 crore on LPG sales between April and December 2024. Retail prices remained largely unchanged despite a global rise in LPG rates, adding pressure on the state-run firms.

The compensation proposal is in its final review stage and will be brought to the Cabinet by the Finance Ministry. It follows a similar move in 2022 when the government paid Rs 22,000 crore for past under-recoveries. The current losses for FY25 are estimated to be around Rs 40,500 crore.

The funds are likely to come from additional revenue generated by the excise duty hike on petrol and diesel earlier this year, which will be routed through the Consolidated Fund of India. So far, about Rs 32,000 crore in extra collections have been generated from the duty hike.

While the compensation is intended to offset LPG-related losses, OMCs will have the flexibility to utilise the funds for capital expenditures or operational upgrades. Officials say this approach helps support companies without adding to the official subsidy bill or breaching the government’s expenditure targets.

Clearances from the Expenditure Finance Committee are already in place, and the Cabinet decision is expected soon.

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