Government to Compensate OMCs for ₹30,000 Crore LPG Under-Recovery in FY26

According to news reports, the Government of India is reportedly likely to provide oil marketing companies (OMCs) compensation for the ₹30,000 crore under-recovery they are incurring in the ongoing financial year 2025–26 (FY26) due to the sale of subsidised Liquefied Petroleum Gas (LPG). According to a news report, officials from Indian Oil Corporation Ltd (IOCL), the largest among the 3 public sector OMCs, disclosed that they alone faced an under-recovery of ₹19,000 crore in FY25.

Although the Centre raised the price of LPG by ₹50 per cylinder last month, the move only reduced under-recovery by ₹10,000 crore. The remaining gap is expected to be covered through government support by the end of FY26.

Read More: Best Oil and Gas Stocks in May 2025: CPCL, Oil India, Aegis and More- Based on 5-Year CAGR. 

Mounting Losses for OMCs in FY25

OMCs bore significant financial pressure in FY25, with collective losses exceeding ₹41,000 crore. This was primarily driven by the surge in global LPG benchmark rates, particularly the Saudi Contract Price (Saudi CP). As per industry sources, the average Saudi CP escalated from $415 per tonne in FY21 to $712 per tonne by FY23 due to heightened volatility sparked by global trade tensions.

India’s LPG Dependency and Pricing Dynamics

India imports over 60% of its LPG requirement. As a result, domestic pricing remains closely linked to international benchmarks. Between July 2023 and February 2025, the average Saudi CP climbed 63% to $629 per tonne. During the same period, however, the effective price paid by households under the government’s flagship Pradhan Mantri Ujjwala Yojana (PMUY) was slashed by 44%.

This disparity underscores the burden absorbed by OMCs to maintain affordable household LPG prices, especially for economically vulnerable segments.

PMUY: Widening Access to Clean Cooking Fuel

Launched in May 2016, the PMUY aimed to replace traditional cooking fuels like firewood and cow dung with cleaner alternatives such as LPG. As of March 2025, the scheme had 103.3 million beneficiaries, pushing national LPG coverage to 107%. While beneficiary expansion under PMUY has plateaued, OMCs indicate that national-level demand for LPG is expected to stabilise rather than decline in the coming years.

Government Mulls Compensation Options

According to the news report, petroleum ministry officials have conveyed that a further price increase for PMUY consumers is unlikely in the short term. Consequently, discussions are ongoing with the finance ministry to determine an appropriate compensation mechanism for OMCs. A direct capital transfer, similar to the ₹22,000 crore support approved in 2022, remains a possibility—though not the government’s preferred option at present.

Conclusion

LPG prices to stay elevated due to shifts in global trade patterns. China has redirected a significant portion of its LPG imports from the United States to West Asia, increasing regional demand and contributing to price rises in Asia. Simultaneously, the US has boosted LPG exports to Europe and other parts of Asia, including India and Japan. This evolving trade landscape is keeping US and European prices subdued, while pushing Asian rates higher.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.