India’s energy subsidy bill has jumped 40% in five years to ₹4.38 lakh crore in FY25, with the ongoing West Asia conflict-linked fuel shock threatening to push LPG under-recoveries beyond ₹60,000 crore and sharpen fiscal stress for the government and oil marketing companies.
The increase reflects rising exposure to volatile global energy markets, with India’s dependence on imported fuels amplifying the impact of price shocks. Total energy subsidies rose from ₹3.13 lakh crore in FY20 to ₹4.38 lakh crore in FY25, driven by higher power support, a rebound in oil and gas subsidies, and continued reliance on fossil fuels.
The biggest component was transmission and distribution support, which climbed from ₹1.78 lakh crore in FY20 to ₹2.59 lakh crore in FY25. Oil and gas subsidies, after declining to ₹49,045 crore in FY24, rebounded sharply to ₹81,346 crore in FY25, while coal subsidies stood at ₹45,640 crore.
LPG & Fuel Shock
The pressure is most acute in LPG. With global LPG prices rising and India importing a large share of its domestic requirement, annual under-recoveries could exceed ₹60,000 crore in FY27 if current price levels persist, against about ₹33,000 crore in FY25.
According to Mapping India’s Energy Policy 2026, released by the International Institute for Sustainable Development, India’s quantified energy subsidies were at least ₹4.3 lakh crore, or 2.3% of real GDP, in FY25. Of this, ₹2.9 lakh crore, or 68%, came through direct budgetary transfers, highlighting the strain on public finances amid global commodity volatility.
“The lesson from today’s energy crisis is clear — India needs a roadmap for smarter subsidies — not bigger and ever-growing ones,” said Swasti Raizada, Senior Policy Advisor, IISD. “That means gradually shifting public spending away from recurring fossil-fuel support toward upfront investments in renewables, electric mobility, and clean cooking alternatives, while better targeting electricity subsidies.”
State Finances
The report said electricity consumption subsidies provided by state governments reached ₹2,40,992 crore in FY25, contributing nearly 58% of all energy subsidies. These subsidies have nearly doubled over the last decade as electrification became almost universal.
State finances are already feeling the strain. In FY25, Punjab, Rajasthan, Andhra Pradesh, Karnataka and Madhya Pradesh spent 9% to 20% of their revenues on electricity subsidies. Punjab topped the list at 20%, after expanding subsidy coverage to domestic consumers up to 300 units, besides free electricity to agricultural consumers.
In Karnataka, the Gruha Jyoti Yojana, launched in August 2023, helped push electricity subsidies from ₹13,906 crore in FY23 to ₹27,725 crore in FY25. The report noted that such volumetric cut-offs are double to triple the monthly household electricity consumption of around 103 units in FY25, raising questions on targeting.
Discoms are also increasingly dependent on subsidy reimbursements. Tariff subsidies accounted for an average 21% of discom revenues in FY25, up from 17% in FY21, while revenue from operations recovered only around 70% of costs. In FY24, around 44%–86% of total borrowings by discoms in eight states were reportedly for non-capital expenditure.
The LPG subsidy risk is equally significant. LPG support reached ₹71,718 crore in FY25, about 17% of total energy subsidies. The report said 60% of India’s domestic LPG is imported, making it a direct channel through which global price volatility hits public finances.
Saudi Aramco LPG benchmark prices rose around 44% between March and April 2026. If these levels persist and domestic prices remain at ₹913 per refill, annual LPG under-recoveries could exceed ₹60,000 crore in FY26-27. Even moderate increases from pre-crisis levels could push under-recoveries to ₹26,000 crore at a 10% rise and ₹48,000 crore at a 30% rise.
The transport fuel shock is also significant. Crude prices surged from about $66 per barrel on February 26, 2026, to about $113 per barrel by April 7, a near 75% rise in six weeks. Before policy action, under-recoveries stood at around ₹26/litre on petrol and ₹82/litre on diesel, with OMCs absorbing nearly ₹2,400 crore daily while retail prices remained frozen.
The government’s ₹10/litre excise duty cut on petrol and diesel on March 27 could cost ₹1.3 lakh crore, or 0.4% of GDP, if maintained through FY27.
Clean energy support is growing, but remains smaller. Renewable energy subsidies rose from ₹10,017 crore in FY20 to ₹26,406 crore in FY25, while EV subsidies increased from ₹1,983 crore to ₹16,812 crore. Biomass and biofuel support rose to ₹8,649 crore. Still, fossil fuel subsidies were three times those for clean energy in FY25.
Raizada said smarter subsidy design can reduce long-term costs and shield households and public finances from global fuel shocks. “Delay, however, leaves fiscal accounts vulnerable to global supply-chain disruptions and volatile fuel markets,” she said.
The report said renewable energy offers a pathway to fiscal reform, with firm and dispatchable renewable tariffs at ₹4.76–4.77/kWh, below the average power procurement cost of ₹5.38/kWh in 2024-25. It also said electric cooking in urban areas is already around 20% cheaper than LPG, while large-scale adoption could halve LPG import demand and generate subsidy savings of up to ₹2.4 trillion by 2050.