Excise Duty Hike May Help Cut LPG Losses for OMCs in FY26

As per news reports, the Indian government is expected to collect an additional ₹33,000 crore in FY26 after raising the excise duty on petrol and diesel by ₹2 per litre. This extra revenue is likely to be used to support oil marketing companies (OMCs) that faced huge losses due to selling LPG at subsidised prices last year.

As per CareEdge Ratings, these funds can be used to reduce the burden of LPG under-recoveries, which touched ₹41,383 crore in FY25.

LPG Price Hike and Impact on Losses

Last month, the government also raised LPG cylinder prices by ₹50 per 14.2 kg cylinder. This hike is expected to bring in around ₹10,000 crore in FY26 and reduce the under-recovery from ₹220 to ₹170 per cylinder.

The greater reduction in under-recoveries could happen if the cost of sourcing LPG comes down in the future.

Crude Oil Prices Offer Relief

Crude oil prices dropped sharply in April 2025, falling from $77 to below $65 per barrel. This decline benefits OMCs by improving fuel retail margins, even though refining margins are under pressure due to weak global demand.

International crude oil prices are expected to remain in the range of $60–$70 per barrel during FY26, which is considered favorable for Indian OMCs.

Lower LPG Sourcing Costs Ahead?

The cost of LPG is closely tied to the Saudi Contract Price (CP), which usually moves in line with crude oil prices. However, due to trade tensions between the US and China, Saudi CP has not fallen as quickly as crude oil.

This shift has opened the door for India to buy more LPG from the US, which may further reduce sourcing costs and help lower under-recoveries.

Conclusion

The excise duty hike and recent LPG price increase are expected to ease the financial burden on OMCs in FY26. Suppose crude oil prices stay low and India continues to diversify its LPG imports. In that case, under-recoveries may drop by 45% this year—bringing some much-needed relief to both the companies and government finances.

Read more on: Will April Inflation Data Clear the Path for a June Rate Cut?

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.