Centre may pay Rs 200 billion to retailers to keep cooking gas prices in check

The Indian government is considering plans to pay about Rs 200 billion to state-run fuel retailers like Indian Oil Corp in order to keep cooking gas prices under control. Sources say the Centre is trying to partly compensate the retailers for their losses.

India imports 50% of its liquefied petroleum gas which is generally used as cooking fuel.

Three state-run retailers Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL)have suffered the worst quarterly losses due to the soaring international crude prices. They together supply over 90% of India's petroleum fuels.

Refining-cum-fuel retailing companies use over 85% of imported oil in the country. They benchmark products as per international price which increased due to fuel-making capacity in the US and fewer exports from Russia. State oil companies are bound to buy crude at international prices and sell in India as per the price sensitivity of the market. Private retailers like Reliance Industries Ltd have better flexibility.

People close to the matter said that the oil ministry is seeking compensation of Rs 280 billion. And the finance ministry is agreeing to Rs 200 billion, reported NDTV. Discussions are currently at an advanced stage but a final decision has not been taken yet.

This will lead to subsidies on fuels rising significantly, reported Financial Express. The government had earmarked oil subsidies at Rs 58 billion for FY22 and fertiliser subsidies at Rs 1.05 trillion. The government is already struggling with tax cuts on fuels and higher fertiliser subsidies which were implemented to tackle inflation.