LPG subsidy bill may top Rs 1 lakh crore in FY27, create Rs 70,000 cr gap over Budget allocation

New Delhi: The government's LPG subsidy bill could cross Rs 1 lakh crore in FY27, creating a gap of around Rs 70,000 crore over the Rs 30,000 crore allocation provided in the Union Budget, as the Centre and oil marketing companies (OMCs) continue to absorb a larger share of the increase in fuel and LPG prices, according to a report by PL Capital.

The report said the Budget allocation of Rs 300 billion for LPG subsidy has already been overshot. At the current run rate, the LPG subsidy bill could exceed Rs 1 trillion, with the subsidy loss currently estimated at Rs 490 per cylinder.

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It stated, "We estimate that the subsidy allocation of Rs3 00bn in budget for FY27 has been long overshot, and current LPG subsidy loss per cylinder if Rs 490 and at current run rate LPG subsidy might cross Rs 1 trillion".

It said the government and OMCs are bearing a higher share of the increase in fuel and LPG prices amid continued uncertainty linked to the ongoing war-related situation.

The report also highlighted a sharp rise in overall subsidy spending during the first two months of FY27. Total spending on major subsidies stood at Rs 755.4 billion during April-May 2026, compared with Rs 512.5 billion in the same period last year, registering a 47 per cent year-on-year increase.

Food subsidy rose to Rs 408.0 billion from Rs 279.9 billion, up 46 per cent year-on-year. Nutrient-based fertiliser subsidy increased to Rs 60.1 billion from Rs 43.1 billion, a rise of 39 per cent, while urea subsidy climbed to Rs 284.5 billion from Rs 189.5 billion, marking a 50 per cent increase.

Petroleum subsidy stood at Rs 2.8 billion during the period, compared with nil in the corresponding period last year.

According to the report, higher subsidy spending has been driven by uncertainty arising from the war-related situation, putting additional pressure on government finances.

On capital expenditure, PL Capital expects the government to remain cautious during the first half of FY27 as it may prioritise keeping the fiscal deficit under control instead of opting for higher borrowings.

The report noted that capital expenditure grew 13 per cent year-on-year to Rs 2.5 trillion as of May 2026, compared with Rs 2.2 trillion in the same period last year.

It added that the comparison was against a high base, as capital expenditure in FY26 had been front-loaded, resulting in 54 per cent year-on-year growth during the corresponding period last year.

The report said the government's focus on containing the fiscal deficit, coupled with rising subsidy commitments, may keep capital spending measured during the first half of the current financial year.