India’s cooking gas subsidy burden has reached unsustainable levels, with direct subsidies, under-recovery payouts, and compensations together exceeding Rs 66,000 crore in recent years. The costs stem from heavy import dependence and exposure to volatile global markets.
The total subsidy burden borne by the government for LPG has averaged around Rs 17,000 crore per year over the last seven years, according to a report by the Institute for Energy Economics and Financial Analysis. For FY2025-26, Rs 12,100 crore has been allocated for LPG subsidies.
But the actual fiscal impact is far higher. An under-recovery payout of Rs 22,000 crore was made to oil marketing companies in FY2022-23, which the report describes as “an indirect subsidy.” An additional compensation of Rs 30,000 crore was given in August 2025 to further offset losses incurred by OMCs from selling domestic LPG at regulated prices.
The subsidies exist because both LPG and natural gas are heavily import-dependent. India imports almost 60% of its LPG needs and 50% of its natural gas needs via liquefied natural gas imports at current consumption levels.
“The high dependence on imports for both LPG and PNG poses energy security challenges for the country, especially in the current volatile geopolitical environment,” the report said.
The import bill tells the story. Together, the import bill for LPG and LNG has increased by 50% over the past six years, from US$17.7 billion in FY2018-19 to US$26.4 billion in FY2024-25. This accounts for around 3% of India’s total import bill of US$915 billion for FY2024-25.
The bill touched a high of US$30.5 billion in FY2022-23 when the Russia-Ukraine war led to supply disruptions.
Domestic prices are directly linked to international markets. LPG prices in India are based on the import parity price mechanism using Saudi Aramco’s LPG prices. Domestic gas prices are currently priced at 10% of the monthly average of Indian crude basket, which is linked to international crude prices.
The Japan Korea Marker, a benchmark for spot LNG prices in Asia, has shown volatility in recent years. A clear correlation can be seen between its movement and retail PNG prices in India, according to the report.
“LNG prices have proven to be among the most volatile in comparison to other commodities in times of conflict and geopolitical tensions,” an earlier IEEFA report noted. “LNG prices have fluctuated widely in months of relative stability for other commodities, such as oil and gold, highlighting the inherently volatile nature of gas markets.”
The annual cost of cooking fuel for a family of four using PNG increased by 47% in five years from Rs 4,522 in FY2020-21 to Rs 6,657 in FY2024-25. Using non-subsidised LPG also became expensive, with the annual cooking fuel expenditure for a family of four going up to Rs 6,424 in FY2024-25, a 23% increase from FY2020-21.
The annual cost for a family of four for non-subsidised LPG had risen to Rs 8,310 in FY2022-23 due to global fuel price volatility, after which an Rs 200 subsidy was given to all consumers.
Domestic gas prices are proposed to be deregulated from 2027, which would expose them to more geopolitical volatilities.
“Such high price volatility concerns put the affordability of LPG and PNG at risk for people and, in some cases, could encourage switching back to fossil fuels hindering clean cooking progress in the country,” the report said.
The subsidy-dependency is clear. The per-capita consumption of LPG cylinders by PMUY consumers increased from 3 in FY2019-20 to 4.34 in FY2024-25 due to additional fiscal support provided by the government.
Without subsidies, clean cooking fuels become unaffordable, forcing the government into an endless cycle of fiscal support with no clear exit strategy.
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