Grant of Rs 22, 000 crore approved by the government for oil PSU to compensate for LPG loss

Tags: National Economy/Finance

The Union Cabinet, chaired by the Prime Minister Narendra Modi, on 12 October 2022 has approved a onetime grant amounting to Rs.22,000 crore to three Public Sector Undertaking Oil Marketing Companies (OMCs). The grant will be distributed among Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL).

In India LPG (Liquefied Petroleum Gas) is mainly used for cooking purposes and its price is linked to the International price. India imports about half of its requirement of LPG.

Government Subsidy on LPG 

The Government of India has freed the price of the LPG and linked it with the International market. However, the government of India also provides subsidies on LPG cylinders to certain sections of society .

The Centre provides subsidy, through direct bank transfer, on 12 LPG cylinders (14.2 kg) a year per household. On purchases beyond 12 cylinders a year, the household has to pay the non-subsidised price.

Losses incurred by the PSU Oil Marketing Companies 

In theory the prices of the LPG are determined by the international prices but in reality the government of India puts pressure on the PSU OMC not to increase the prices of LPG too much as it may hurt the public. So if the price of LPG goes up in the market and the prices are not increased in India then the loss is borne by the OMC. 

During the period from June 2020 to June 2022, the international prices of LPG increased by around 300%.  However, to insulate consumers from fluctuations in international LPG prices, the cost increase was not fully passed on to consumers of domestic LPG.  Accordingly, domestic LPG prices have raised by only 72% during this period.  

TO compensate the OMC government is giving them a grant. 

Grant means that the OMC will not return the money back to the government .

Union Minister for Petroleum and Natural Gas: Hardeep Puri