The government's LPG subsidy spending is significantly outpacing budget allocations for the current financial year. According to a report by PL Capital, the ₹30,000 crore budget provision for FY27 has already been surpassed, creating a substantial gap of around ₹70,000 crore over the allocated amount. The report estimates that the subsidy allocation of ₹300 billion in budget for FY27 has been long overshot, with current subsidy losses estimated at ₹490 per LPG cylinder. If spending continues at the current pace, the total LPG subsidy bill could cross ₹1 trillion by the end of the financial year, as reported by The Times of India.
The subsidy burden has increased substantially due to the government's decision, along with oil marketing companies (OMCs), to absorb a larger share of higher fuel and LPG prices amid continued uncertainty related to the ongoing war situation. As reported by PL Capital, this decision has contributed to the accelerated spending on subsidies, with the report stating that subsidy spending has accelerated sharply at the start of FY27. The government and OMCs are bearing a higher share of the increase in fuel and LPG prices amid continued uncertainty linked to the ongoing war-related situation. The report also pointed to a significant rise in overall subsidy expenditure during the first two months of FY27.
The government's subsidy expenditure has shown a dramatic increase in the early months of FY27. According to PL Capital data reported by The Times of India, between April and May 2026, the government spent ₹755.4 billion on major subsidies, representing a 47% increase from ₹512.5 billion during the same period last year. This accelerated spending pattern indicates the growing pressure on government finances from subsidy obligations. The report also highlighted that food subsidy rose to ₹408.0 billion from ₹279.9 billion, up 46% year-on-year, while nutrient-based fertiliser subsidy increased to ₹60.1 billion from ₹43.1 billion, a rise of 39%, and urea subsidy climbed to ₹284.5 billion from ₹189.5 billion, marking a 50% increase. Petroleum subsidy stood at ₹2.8 billion during the period, compared with zero in the same period a year earlier.
Despite rising subsidy commitments, the government is expected to remain cautious on capital expenditure during the first half of FY27 as it may prioritise keeping the fiscal deficit under control instead of opting for higher borrowings. According to PL Capital, capital expenditure grew 13% year-on-year to ₹2.5 trillion as of May 2026, compared with ₹2.2 trillion in the same period last year. The report noted that the comparison was against a high base, as capital expenditure in FY26 had been front-loaded, resulting in 54% year-on-year growth during the corresponding period last year. The government's focus on containing the fiscal deficit, coupled with rising subsidy commitments, may keep capital spending measured during the first half of the current financial year.
