According to a senior finance ministry official, the Centre will likely provide the state-run fuel dealers an extra sum totaling about Rs. 20,000 crores – over the Rs. 5,800 crores allocated – to make up for the under-recoveries on cooking gas in the current fiscal year. This indicates that gasoline subsidies, which were reduced to about Rs. 241 crores in FY22, may increase significantly this year.
Despite the fact that households have not received any LPG subsidies in their bank accounts since June 2020, an incomplete cost pass-through to customers has increased the under-recoveries of the state-run oil marketing corporations on this front. Additionally, it is estimated that the Ujjwala Yojana, which provides up to 12 LPG cylinders per year at a cost of Rs 200 each to 90 million individuals, will cost Rs 6,100 crore in FY23 when it is reinstated in May 2022.
With record-high international crude prices, the three state-run retailers IOC, BPCL, and HPCL, which provide over 90% of domestic fuel supplies, saw the worst quarterly under-recoveries in retail fuel sales in years in Q1FY23. Nomura predicted that OMCs under-recovered on LPG by Rs 9,000 crore just in Q1FY23. It states that the under-recoveries in H2 of the previous year ranged between 6,500 and 7,500 crores.
In the FY23 Budget, the Centre made a provision of Rs 5,800 crore for LPG subsidies, including a direct benefit transfer of Rs 4,000 crore for domestic use and another Rs 800 crore for the poor under the Ujjwala scheme. Since June 2020, the subsidies on domestic LPG have been limited to small amounts of freight subsidies for expansive regions. The higher fuel subsidies may put further stress on the government finances already under pressure due to about Rs. 2 trillion additional subsidies announced for FY23, mainly for food and fertilizer. It had also cut excise duty cut on petrol and diesel which will likely result in about Rs. 85,000 crore revenue loss.