Government sources had said that the hike of ₹50 per 14.2 kg LPG cylinder is likely to generate around ₹10,000 crore in FY26.
The government is expected to mop up additional around ₹33,000 crore due to the ₹2 per litre hike in the excise duty of key auto fuels—diesel and petrol—last month.
“With the recent increase in excise duty by ₹2 per litre from April 08, 2025, the government is expected to mop up incremental around ₹33,000 crore, which can be passed on to OMCs for their LPG under-recoveries in FY26,” said Director at CareEdge Ratings.
Last month, cooking gas prices were raised by ₹50 per cylinder and excise duty on petrol and diesel was hiked by ₹2 a litre to compensate oil marketing companies (OMCs) for the ₹41,383 crore loss in FY25 due to supplying liquefied petroleum gas (LPG) at below market rates.
Government sources had said that the hike of ₹50 per 14.2 kg LPG cylinder is likely to generate around ₹10,000 crore in FY26.
Market dynamics
He said that OMCs are expected to experience lower refining margins due to a weak global demand scenario for end products in FY26, while their fuel retailing margins are expected to expand on the back of lower crude oil prices. Besides, pump prices remain largely stable.
“LPG under-recoveries are also expected to decline materially in FY26, following the recent price hike per cylinder. At the same time, reduction in LPG under-recoveries in FY26 would also be critically dependent on a reduction in LPG sourcing cost,” he explained.
On the April 2025 excise duty hike, CareEdge had said that the government increased excise duty to partly compensate for the reduced profitability of government-owned oil exploration and production (E&P) companies.
Crude oil prices experienced a sharp decline in the first week of April 2025 (from $77 a barrel on March 31), following the announcement of reciprocal tariffs by the US, which caused crude prices to fall below $65 a barrel, a sweet spot for OMCs.
Trade sources expect international crude oil prices to remain in the range of $60-70 per barrel during FY26.
OMCs faced significant under-recoveries in LPG to the extent of around ₹220 per 14.2 kg cylinder in FY25, as the higher LPG sourcing cost could not be passed on to the consumers, CareEdge said.
With the recent increase in LPG prices by ₹50 per cylinder, effective April 8, 2025, the LPG under recoveries are expected to have decreased to around ₹170 per cylinder, it added.
“Furthermore, anticipated reduction in LPG sourcing cost going forward on the back of decline in crude oil prices as well as higher sourcing of LPG from US is expected to further reduce the LPG under-recoveries in the coming quarters such that aggregate under-recoveries of Indian OMCs could decline by around 45 per cent in FY26 y-o-y,” the ratings agency anticipated.
Procurement cost
The procurement cost of LPG is linked to the international LPG benchmark, specifically the Saudi Contract Price (CP), which in turn is mainly dependent on the price of crude oil, its primary raw material, CareEdge pointed out.
Historically, crude oil price changes have translated into changes in Saudi CP with a lag. While the crude oil price (Indian basket) declined sharply to $67.7 per barrel in April 2025 and further to $61.8 in the first week of May from an average of $78.6 a barrel in FY25, the decline in the Saudi CP is lagging, it added.
“As China imports a large portion of its LPG requirements from the US, the heightened tariff war has led China to explore alternative avenues, including the Middle East. This has prevented the Saudi CP price from declining in line with the recent decline in crude oil prices. This situation has opened up opportunities for India to diversify its LPG purchases from the US which could also help India reduce its trade surplus with the US,” it said.
