Overview of finances [1]

In 2024-25, the Ministry has been allocated Rs 15,930 crore, which is an 8% increase over the revised estimates for 2023-24.

Table  1 : Allocation for the Ministry of Petroleum and Natural Gas (in Rs crore)

Major Heads	Actual 2022-23	Budget 2023-24	Revised 2023-24	Budget 2024-25
LPG Subsidy	6,817	2,257	12,240	11,925
IGGL (North East Natural Gas Pipeline Grid)	1,528	1,800	1,300	1,000
Capital Support to OMCs	0	30,000	0.01	0.01
One-Time Grant to OMCs	22,000	0	0	0
Strategic Oil Reserves	123	5,711	230	628
Others	444	1,240	987	2,377
Total	30,912	41,008	14,757	15,930

Note: SOR – Strategic Oil Reserves; OMC – Oil Marketing Company; IGGL – Indradhanush Gas Grid Limited.
Sources: Union Budget Documents 2024-25; PRS.

Historically, the Ministry’s expenditure trend has followed the trend in global crude oil prices (see Figure 6 in Annexure).  India imports about 85% of its crude oil requirement. [2]  When global oil prices rose, the government limited the price rise in India to protect consumers.  The loss to oil marketing companies (OMCs) was partly compensated by the central government.  To offset the losses, the government issued oil bonds to OMCs in lieu of cash subsidies from 2002.  As of February 2023, the outstanding value of the oil bonds is Rs 92,200 crore (Rs 1,06,933 crore including interest).  All the bonds will mature by April 2026 (See Table 2 in Annexure). [3]  Since 2014, the price of petrol and diesel are no longer set by the government but by OMCs based on market conditions and have been revised daily since 2017. [4] 

In 2024-25, Rs 11,925 crore has been allocated for the LPG subsidy.  This includes allocation towards Direct Benefit Transfer for LPG (PAHAL) and LPG connections to poor households (Pradhan Mantri Ujjwala Yojana). ¹

In 2024-25, Rs 1,000 crore has been allocated to Indradhanush Gas Grid Limited (IGGL) as a part of the North East Natural Gas Pipeline Grid project.

To insulate consumers from fluctuations in international LPG prices, government transfers grants to OMCs. [5]   In 2023-24, Rs 30,000 crore was allocated as capital support to OMCs.  The support provided was in the form of an equity infusion for the energy transition plans of OMCs.  However, as per the revised estimates, only one lakh rupees has been allocated under this head.  In 2022-23, Rs 22,000 crore was allocated as one-time grant to OMCs.  In 2024-25, no funds have been allocated for the capital support and one-time grant to the OMCs.

Rs 628 crore has been allocated to the Strategic Oil Reserves.  Under this, Rs 408 crore is allocated to Indian Strategic Petroleum Reserve Limited (ISPRL) to construct additional storage facility to store crude oil in case of supply shock.

LPG Subsidy

Allocation to LPG subsidy constitutes 75% of the overall allocation to the Ministry.  The Ministry provides a subsidy on LPG cylinders to consumers.  Before 2013, this subsidy was provided in the form of subsidised cylinders.  However, following the launch of the PAHAL (Pratyaksh Hanstantrit Labh) scheme in 2013, this subsidy is directly credited to the bank accounts of the beneficiaries. [6]   In 2024-25, the Ministry is estimated to spend Rs 11,925 crore on LPG subsidy, which is 2.5% lower than the revised estimates of 2023-24. ¹    This amount constitutes around 75% of the total allocation to the Ministry.

Direct Benefit Transfer (PAHAL)

The PAHAL scheme was launched in 2013 (54 districts in the first phase) and later launched in the rest of the country in 2015. [7]   Under the scheme, a consumer (with annual income of up to ten lakh rupees) can avail Direct Benefit Transfer (DBT) cash-subsidy for an LPG cylinder.  The beneficiaries buy LPG cylinders at market rate and subsequently receive subsidies directly in their bank accounts.

In 2024-25, Rs 1,500 crore has been allocated to DBT-PAHAL. ¹    In 2023-24, the budget allocation for DBT-PAHAL was Rs 180 crore, which has increased to Rs 1,460 crore in the revised estimates. [8]   Note that expenditure on subsidy is dependent on the difference between the subsidised and non-subsidised price for LPG.

Figure 1: Average price of non-subsidised LPG (in Rs per 14.2 kg cylinder)

 

Sources: Indian Oil Corporation Limited; PRS.

As per the government, the PAHAL scheme has led to cumulative savings of Rs 73,433 crore as of March 2023. [9]    Additionally, 4.15 crore duplicate, fake/non-existent, and inactive LPG connections have been eliminated.  There are 2.45 crore non-subsidised customers, out of which 1.13 crore are individuals who have voluntarily given up their LPG subsidy under the ‘Give It Up’ campaign. ⁹

Figure 2: Cash transfer and beneficiaries under the PAHAL scheme (in Rs crore)

Sources: Direct Benefit Transfer website; PRS.

In 2016, the Comptroller and Auditor General (CAG) audited implementation of the PAHAL Scheme. [10]   It noted that while the scheme was successful in addressing the diversion of subsidised LPG cylinders to commercial consumers, there still remains a risk of diversion of non-subsidised domestic LPG to commercial consumers.   This is because there is a significant price difference between non-subsidised domestic LPG and commercial LPG as a commercial LPG cylinder is 19 kg while a non-subsidised domestic LPG is 14.2kg.  According to the latest data from Indian Oil, the price of a non-subsidised 14.2 kg cylinder is Rs 803, while the price of a 19 kg cylinder is Rs 1,676 in Delhi. [11] ^{, [12]}   This implies that commercial cylinder is 56% more expensive per kg than non-subsidised domestic cylinder.

Pradhan Mantri Ujjwala Yojana

The Ministry also provides LPG connections to poor households under the Pradhan Mantri Ujjwala Yojana (PMUY).  PMUY was launched in May 2016 to provide LPG connections to adult women of poor households. [13]   In 2018, the scheme was expanded to cover all SC/ST households, beneficiaries of Pradhan Mantri Awas Yojana (Gramin), forest dwellers, backward classes, in addition to households identified under the Socio-Economic and Caste Census (SECC). [14]

The scheme aimed to provide three crore connections to women by March 2018, a target that was achieved by February 2018. [15]   In August 2021, the government launched Phase 2 of PMUY (Ujjwala 2) with the goal of releasing one crore PMUY connections.  The government has decided to provide 75 lakh more LPG connections over three years from the Financial Year 2023-24 to 2025-26. This will take the total number of PMUY beneficiaries to 10.35 crore. [16]   As of June 9, 2024, the government has released a total of 10.32 crore PMUY connections. [17]

Figure 3: PMUY and cumulative LPG connections (in crore)

 

Sources: Indian Petroleum & Natural Gas Statistics 2022-23; PRS.

A targeted subsidy of Rs 300 per 14.2 kg LPG cylinder for up to 12 refills per year is being provided to PMUY consumers. [18]   This subsidy, which started in 2022-23, aims to promote the use of LPG and is directly deposited into the beneficiary’s bank account. [19]   There is an allocation of Rs 9,094 crore for this subsidy in 2024-25.  The allocation in the revised estimates of 2023-24 was Rs 8,500 crore. ¹

A report by the Petroleum Planning & Analysis Cell (2016) based on the survey conducted noted that the key barriers for not applying for LPG connection are: (i) high initial cost, including security deposit/ price of gas stove (among 86% household), (ii) high recurring cost of the cylinder (among 83% Households), and (iii) easy availability of firewood. [20]

A CAG audit (2019) of the PMUY scheme raised concerns regarding the low sustained usage of gas cylinders distributed under the scheme. [21]   75% of consumers requested only one refill, and 57% requested three or more refills from the time they received the connection until December 2018.

Strategic Petroleum Reserves

Strategic Petroleum Reserves (SPR) are used to store crude oil.  These are essential for the energy security of the country, serving as a reserve during any supply chain shock in global crude oil markets.  In 2024-25, Rs 628 crore has been allocated towards strategic oil reserves.  Of this, Rs 220 crore has been allocated to ISPRL (Indian Strategic Petroleum Reserve Limited, a government undertaking) for its operation and maintenance.  No fund has been allocated to ISPRL for the purchase of crude oil in 2024-25 to fill strategic reserves.  In 2023-24, Rs 5,000 crore was allocated for the purchase of crude oil for the existing reserves.  However, as per the revised estimates, these funds remain unutilised.  

Three SPRs with a total capacity of 5.33 million metric tons (MMT) have been constructed and filled by ISPRL.  Collectively, these three SPRs can meet the demand for approximately 9.5 days. [22]   In 2024-25, Rs 408 crore has been allocated for the construction of additional storage to increase the capacity. ¹   The completion of the additional caverns (Chandrikhol and Padur, Phase II) will increase India’s strategic reserves capacity by 6.5 MMT, enabling coverage of an additional 12 days of domestic demand. [23]   This will add to the existing reserve capacity of 9.5 days.  Indian refiners maintain 65 days of crude storage.  International Energy Agency mandates 90 days of storage for its member countries. ²³

Contribution of petroleum to revenue

Petroleum serves as a significant source of revenue for both central and state exchequers.  In the fiscal year 2022-23, the central government earned Rs 4.28 lakh crore from the petroleum sector, while states earned Rs 3.2 lakh crore. ²⁴   The revenue generated from petroleum accounted for 18% of the central tax revenue. [24]    (See Table 2 in Annexure.)

Promoting Alternate Fuels

Ethanol Blending (E-20, E-100)

The government has introduced the blending of ethanol in petrol as part of the Ethanol Blended Petrol (EBP) Programme.  This initiative has multiple objectives including reducing import dependence, saving foreign exchange, boosting the domestic agriculture sector, and providing associated environmental benefits like lesser emissions. [25]

The National Policy on Bio-Fuels, 2018 was formulated to increase biofuel usage in the energy and transportation sectors.  The Policy aims for 20% blending of ethanol in petrol and 5% blending of biodiesel in diesel by 2030. [26]   However, the Standing Committee on Petroleum (2021) recommended advancing the target for ethanol blending from 2030 to 2025. [27]   As a result, in June 2021, the target was revised to achieve 20% blending of ethanol by 2025. [28]  

On February 6, 2023, the government started the first phase of selling E20 petrol, which is petrol blended with 20% ethanol. [29]   Recently in March 2024, the government has also launched Ethanol-100 fuel for retail sale.   According to the government, over the past decade, ethanol blending has cut CO₂ emissions equal to planting 1.75 crore trees and saved Rs 85,000 crore in foreign exchange due to reduced crude oil imports. [30]

A major issue with ethanol blending is ethanol production.  Most of the ethanol is produced using molasses, which is a by-product of the sugarcane industry.  The other method of production is grain-based where damaged food grain is used. [31]   Sugarcane is a water-intensive crop, so increased ethanol production over the years could have adverse consequences for water availability in areas of high sugarcane cultivation.  Niti Aayog has already highlighted the issue of water scarcity in India. [32]   This could be an unintended consequence of producing more ethanol. 

PM JI-VAN

In 2019, the Pradhan Mantri Jaiv Indhan Vatavaran Anukool Fasal Awashesh Nivaran (PM JI-VAN) Yojana was introduced to offer financial support for the establishment of bio-ethanol projects utilising biomass and other renewable feedstock. [33]   In 2024-25, the scheme has been allocated Rs 117 crore, a 23% decrease from the revised estimates of 2023-24. [34]  

The PM JI-VAN initiative aims to provide viability gap funding to kick-start the establishment of second generation (2G) ethanol capacity in the country and attract investment in this sector. ³³   2G ethanol utilises surplus biomass and agricultural waste to produce bioethanol.   In comparison, first generation ethanol uses sugarcane juice and molasses as raw materials, which are by-products in the production of sugar.  The Standing Committee on Petroleum (2020) noted that this program has the potential to reduce import reliance by substituting biofuels for fossil fuels. [35]

Net Zero by 2070 India announced its target to achieve net zero by 2070 at the 26th session of the United Nations Framework Convention on Climate Change (COP 26) in November 2021. [36] Net-zero refers to achieving a balance between the amount of greenhouse gases produced and the amount removed. India aims to achieve Net Zero through a long-term low-carbon development strategy. This strategy includes seven key transitions: low-carbon electricity, efficient transport, sustainable urbanization, economic growth without increasing emissions, carbon dioxide removal, enhanced forest cover, and addressing economic needs. [37] Policies, such as the Promoting Alternate Fuels, Electric Vehicle Policy and the National Green Mission have been implemented to support such transition.

LNG as a fuel in Transportation Sector

Liquefied Natural Gas (LNG) has emerged as a feasible, economical, and environmentally friendly alternative to traditional fossil fuels for medium and heavy-duty vehicles (HDVs). [38]   Niti Aayog (2024) has highlighted that LNG can be used as a fuel in medium and heavy-duty vehicles. ³⁹   As per Niti Aayog, studies have shown that the HDV segment is the most significant contributor to air pollution and the largest consumer of fossil fuels. [39]    According to the American Petroleum Institute’s report on LNG operations and methodology, a typical LNG-fuelled truck emits 90% less NO_x and Particulate matter than a diesel-fuelled truck, has 100% lower SO_x emissions, and 30% lower CO₂ emissions. [40]   Particulate matter (PM), sulphur dioxide (SO_x), nitrogen oxides (NO_x), and carbon monoxide (CO) are examples of air pollutants.

According to the government, efforts are being made to build LNG filling stations along the golden quadrilateral to begin the development of an LNG-fuelled transport ecosystem in the country. [41]   The use of LNG in the transport sector will be helpful in reducing the country’s import bill.  It can also be used as a transportation fuel for inland waterways. ⁴¹    India also has a draft LNG policy. [42]   The draft policy discusses implementing an integrated approach for the procurement, transportation, storage, and use of LNG. It also focuses on creating necessary infrastructure for LNG, such as pipelines and terminals.

Niti Aayog (2024) has noted that initial government support through policy initiatives played a key role in the adoption of new alternative fuels in countries such as China, Italy, Spain, the Netherlands, and Germany. [43]   To promote LNG adoption in India’s transport sector, it recommended policy measures such as fiscal incentives by the government, including bringing LNG under GST, toll fee exemption, and production-linked incentives. ³⁹    Additionally, it suggested that lessons learned from the adoption of electric vehicles in India could be applied to LNG in HDVs to reduce costs and increase order volumes through bulk procurement. ³⁹

Electric Vehicle

An electric vehicle (EV) uses a rechargeable battery to provide power. [44]   Most vehicles using petrol/ diesel as fuel are equipped with an internal combustion engine (ICE).  Emissions from ICE vehicles contribute to local air pollution and contain greenhouse gas (GHG) emissions, which are responsible for climate change. [45]   In contrast, EVs do not emit GHGs.  

According to Niti Aayog (2021), the transport sector of India is the third largest greenhouse gas emitting sector. [46]   Electrifying the transport sector can help achieve the target of net zero emissions.  However, the overall emissions of an EV depend on the source of electricity used to charge its battery, and in India, most electricity generation is based on coal. [47]   The government under various schemes provides incentives for EV adoption in India. [48]

Green Hydrogen

Green hydrogen is produced through the process of electrolysis, in which water is split into hydrogen and oxygen using electricity generated from renewable sources such as solar, wind, or hydropower^{. 49}   The resulting Green Hydrogen is a clean and emission-free fuel. [49]   Another method of producing Green Hydrogen is from biomass.  Both of these production methods are clean and sustainable, offering green hydrogen as an important fuel in achieving low emission targets.  Green Hydrogen also has the potential to decarbonise several sectors, including transportation, shipping, and steel, among others.  It can replace traditional fossil fuels in transportation, significantly reducing greenhouse gas emissions. ⁴⁹   

Green Hydrogen can also be used in fuel-cells to provide electricity.  Fuel cells are like batteries but they do not need recharging.  They produce electricity and heat by consuming Green Hydrogen as a fuel.  These fuel cells can be used in Fuel cell Electric Vehicles (FCEV). [50]   FCEVs are similar to electric vehicles, where energy stored as hydrogen is converted to electricity by the fuel cell. [51]  

To encourage Green Hydrogen, the Ministry of New and Renewable Energy launched National Green Hydrogen Mission on January 4, 2023. ⁵⁰    According to the government, the aim is to make India a global hub for production, usage and export of Green Hydrogen and its derivatives.  The initial budget for the Mission is Rs 19,744 crore, which is allocated among the following components: (i) Strategic Intervention for Green Hydrogen Transition (Rs 17,490 crore), (ii) Pilot Projects (Rs 1,466 crore), (iii) Research and Development (Rs 400 crore), and (iv) Other Mission components (Rs 388 crore). ⁵⁰

Oil Imports, Production and Export

India imports about 85% of its crude oil requirement. [52]   The prices of retail products in the domestic market are affected by international prices and geopolitical events affecting the supply chain as well as production.   Since 2014, the prices of petrol and diesel have not been set by the government but by OMCs based on market conditions and have been revised daily since 2017. [53]   According to the PPAC, import dependence rose from 87.4% in 2022-23 to 88.6% in 2023-24. [54]   Since 2011-12, the import of crude oil has been increasing at an average rate of 2% a year. ⁵⁷  

In 2022-23, India is the third-largest consumer of oil, utilising 5% of the world’s supply. [55]   As per provisional data, Russia was the biggest oil supplier to India in 2023-24. ⁵⁶   The import from Russia increased by 50% from 2022-23 to 2023-24. [56]    In 2022-23, the top three exporters of oil to India were Iraq, Russia, and Saudi Arabia.  In the fiscal year 2022-23, India exported petroleum products worth USD 57,323 million. [57]    The Standing Committee on Petroleum and Natural Gas (2019) pointed out that more than two-thirds of India’s crude oil imports come from the Middle East. [58]   The Committee urged the government to continue efforts to diversify crude oil imports.

Figure 4: Countries from where India imports crude oil (in USD billion)

Sources: Department of Commerce Export Import Data Bank (HSN Code 2709); PRS.

Since 2011-12, the import of crude oil has been increasing at an average rate of 2% per year. [59]   Crude oil is refined to produce various products such as petrol, diesel, LPG, and kerosene.  These petrochemicals serve as final products, raw materials, and intermediaries in the production of various goods across sectors.  

India also exports some products like LPG, Air Turbine Fuel, Naphtha and some others. However, the quantity of exports has marginally increased from 60,837 TMT in 2011-12 to 61,015 TMT in 2022-23. ⁵⁹ (See Table 4 in Annexure)

India’s production of crude oil and condensate has decreased from 38.08 MMT in 2011-12 to 29.2 MMT in 2022-23 (provisional data), a decline of 2% per annum on average. [60]   The Ministry has attributed this to the faster depletion of the oil fields than expected. [61]  

LNG Production and Imports

Total natural gas imports as a percentage of consumption increased from 28% in 2011-12 to 44% in 2022-23. [62]    The government spent USD 6,832 million on LNG imports in 2011-12 and USD 17,114 million in 2022-23. [63]

Figure 5: Production and import of LNG (MMSCM)

Note: Data for 2023-24 is Provisional.  MMSCM: Million Metric Standard Cubic Meters.
Sources: Petroleum Planning and Analysis Cell; PRS.

In 2022-23, India produced 33,664 million metric standard cubic meters (MMSCM) of LNG and imported 26,304 MMSCM. ⁶³   LNG production in India has been decreasing at an average rate of 3% a year since 2011-12, while the amount of imported LNG over the same period has increased by 4% on average. ⁶²   This is due to an increase in domestic consumption, particularly in the industrial sector, where natural gas is utilised for the production of fertiliser and city gas distribution network. [64]

A crucial factor in expanding the use of natural gas as an energy source is the creation of infrastructure for its transportation.  As of December 2023, the total operational length of the natural gas pipeline network is 23,391 km, which includes 7,490 km of partially commissioned pipelines. ⁶⁵   An additional 4,125 km of pipelines are under construction, which would bring the total length to 27,516 km. [65]    In 2024-25, Rs 1,000 crore has been allocated to Indradhanush Gas Grid Limited (IGGL) as a part of the North East Natural Gas Pipeline Grid project. ¹