LPG subsidy bill may top Rs 1 lakh crore in FY27, create Rs 70,000 cr gap over Budget allocation
Projections indicate India's LPG (cooking gas) subsidy bill could exceed Rs 1 lakh crore in FY27, against a Union Budget allocation of only Rs 30,000 crore for the year — implying a potential shortfall of about Rs 70,000 crore.
The projected overshoot is linked to an estimated subsidy loss of around Rs 490 per LPG cylinder at current price levels, which oil marketing companies (OMCs) and the exchequer are absorbing.
Total spending on major subsidies (food, fertiliser and petroleum/LPG combined) rose about 47% year-on-year in the April–May period of the current financial year, from roughly Rs 512.5 billion to about Rs 755.4 billion.
Within this, food subsidy rose from about Rs 279.9 billion to Rs 408.0 billion (about 46% growth), and fertiliser subsidy (urea plus nutrient-based subsidy) also rose sharply, adding further pressure on government finances alongside the LPG shortfall.
The rise in subsidy spending has been attributed to global uncertainty, including conflict-related disruption affecting energy prices, which is pushing up the government's and OMCs' share of absorbing retail price increases.
Subsidy Classification in the Union Budget
In the Union Budget, "major subsidies" are classified primarily into food, fertiliser and petroleum (including LPG/kerosene) subsidies, presented under the Revenue Expenditure head since subsidies are current transfers rather than asset-creating capital spending. The Food Subsidy funds the Food Corporation of India's procurement-and-distribution operations under the National Food Security Act, 2013; the Fertiliser Subsidy covers urea (under statutory price control) and non-urea/nutrient-based fertilisers (under the Nutrient Based Subsidy, or NBS, policy since 2010); the Petroleum Subsidy funds under-recoveries on subsidised LPG cylinders (mainly for Ujjwala/PMUY beneficiaries) and kerosene.
Key Details
- Subsidies are booked as Revenue Expenditure; a persistent gap between Budget Estimates (BE) and actual/Revised Estimates (RE) for subsidies is a recurring fiscal-slippage risk flagged by the Comptroller and Auditor General (CAG) and rating agencies.
- The Nutrient Based Subsidy (NBS) policy, effective since April 2010, fixes a flat per-nutrient (N, P, K, S) subsidy rate for non-urea fertilisers, while urea remains under statutory price control with a separate, larger subsidy outgo.
- LPG subsidy is currently routed mainly through the PAHAL (Pratyaksh Hanstantrit Labh) Direct Benefit Transfer scheme, under which the subsidy is credited directly to beneficiaries' bank accounts after they pay the market price at purchase.
The projected Rs 70,000 crore FY27 gap is precisely this BE-vs-actual subsidy slippage risk materialising for the petroleum/LPG subsidy head, driven by the difference between the administered/subsidised retail LPG price and the market cost of the cylinder (the per-cylinder "under-recovery").
PAHAL (DBTL) — Direct Benefit Transfer for LPG
PAHAL is the Direct Benefit Transfer scheme for LPG subsidy, under which the government credits the subsidy amount directly into a beneficiary's Aadhaar-linked bank account, while the consumer pays the full non-subsidised market price at the point of purchase. It was first piloted in mid-2013, paused for technical/implementation issues, relaunched as "Modified DBTL" in November 2014, and extended nationwide from 1 January 2015 by the Ministry of Petroleum and Natural Gas.
Key Details
- PAHAL is widely cited as the world's largest direct benefit transfer scheme by number of beneficiaries.
- It rests on the JAM trinity (Jan Dhan bank accounts, Aadhaar, Mobile) for identity verification and cash transfer, reducing leakage and duplicate/ghost LPG connections.
- Pradhan Mantri Ujjwala Yojana (PMUY), launched 2016 by the Ministry of Petroleum and Natural Gas, provides free LPG connections to women from below-poverty-line households and is a major driver of the subsidised-cylinder base whose cost underlies the current subsidy bill.
The widening subsidy bill described in the news reflects the growing gap between the market cost of LPG cylinders and the subsidised price still being protected for PAHAL/Ujjwala beneficiaries, which the Budget's Rs 30,000 crore allocation is proving insufficient to cover.
Fiscal Deficit and Budget Estimates vs Revised Estimates
The fiscal deficit is the excess of total government expenditure over total non-borrowed receipts (revenue receipts + non-debt capital receipts), representing the government's total borrowing requirement in a year. Article 292 of the Constitution empowers Parliament to fix borrowing limits, operationalised through the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. Recent fiscal policy has shifted from a fixed fiscal-deficit-to-GDP target toward a debt-to-GDP anchor, with the Union Budget targeting a fiscal deficit of 4.3% of GDP for FY27 (down from a revised estimate of 4.4% for FY26), alongside a stated goal of bringing central government debt down to around 50% of GDP by March 2031.
Key Details
- FRBM Act, 2003 originally targeted a 3% of GDP fiscal deficit ceiling; successive amendments and escape clauses (including post-pandemic relaxations) revised the glide path.
- Unbudgeted subsidy overshoots (as with LPG here) are a direct pressure point on meeting the fiscal deficit target, since they add to expenditure without a corresponding rise in receipts.
- The government typically revises subsidy allocations upward at the Revised Estimate (RE) stage (presented with the following year's Budget) once actual under-recoveries become clearer.
A Rs 70,000 crore unbudgeted LPG subsidy gap, if it materialises as projected, would need to be absorbed either through additional budgetary provisioning at the RE stage, expenditure compression elsewhere, or OMCs bearing a larger share of under-recoveries — each of which has implications for whether the 4.3% of GDP fiscal deficit target for FY27 is met.
- Projected FY27 LPG subsidy bill: could exceed Rs 1 lakh crore (Rs 1 trillion), against a Budget allocation of Rs 30,000 crore — a projected gap of about Rs 70,000 crore.
- Estimated per-cylinder subsidy loss/under-recovery: about Rs 490.
- Total major subsidy spending, April–May of current financial year: about Rs 755.4 billion, up 47% year-on-year from about Rs 512.5 billion.
- Food subsidy (April–May): about Rs 408.0 billion (up from Rs 279.9 billion, about 46% growth).
- FY27 Union Budget fiscal deficit target: 4.3% of GDP (versus revised estimate of 4.4% for FY26).
- PAHAL (DBTL) LPG subsidy scheme: nationwide rollout from 1 January 2015, under the Ministry of Petroleum and Natural Gas.