LPG Subsidy Expenditure Surges Past Budget Projections, Could Reach Rs 1 Lakh Crore This Fiscal Year
The Indian government’s expenditure on LPG subsidies is projected to exceed Rs 1 lakh crore in FY27, significantly surpassing the Rs 30,000 crore allocated in the Union Budget. A report by PL Capital indicates that the current subsidy loss stands at Rs 490 per LPG cylinder, with total spending potentially reaching Rs 1 trillion by the end of the financial year. The report highlights that the budget provision has already been exceeded.
Rising Subsidy Burden
PL Capital attributes the increasing subsidy burden to the government’s decision, along with oil marketing companies, to absorb a larger share of rising fuel and LPG prices amid ongoing geopolitical uncertainties. The report notes that subsidy spending has surged at the beginning of FY27, with the government spending Rs 755.4 billion on major subsidies between April and May 2026. This marks a 47% increase from Rs 512.5 billion during the same period last year.
Food subsidies accounted for the largest portion of this spending, rising to Rs 408.0 billion from Rs 279.9 billion, a 46% increase. Nutrient-based fertilizer subsidies also saw a significant rise of 39% year-on-year to Rs 60.1 billion, while urea subsidies increased by 50% to Rs 284.5 billion from Rs 189.5 billion. Notably, petroleum subsidies, which were non-existent in the previous year, amounted to Rs 2.8 billion during April-May 2026.
Fiscal Discipline Amid Rising Costs
The report emphasizes that the uncertainty surrounding the geopolitical situation has heightened subsidy commitments, placing additional pressure on government finances. Despite this, PL Capital anticipates that the Centre will exercise caution with capital expenditure in the first half of FY27. Instead of increasing borrowings, the government is likely to focus on maintaining fiscal discipline while managing the escalating subsidy costs.
By the end of May 2026, capital expenditure reached Rs 2.5 trillion, reflecting a 13% increase from Rs 2.2 trillion a year earlier. However, this increase is measured against a high base, as capital spending in FY26 was front-loaded, resulting in a sharper 54% year-on-year increase during the same period. The report suggests that the combination of rising subsidy commitments and a focus on fiscal discipline may lead to more measured capital spending in the early months of the current financial year.
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