Did you know India spent 2.3% of its GDP on energy subsidies? 

India spent at least Rs 4.3 lakh crore, or 2.3% of its GDP, on energy subsidies last fiscal year, 75% of which were consumption subsidies for electricity and LPG, highlighting the scale of public spending currently required to manage energy affordability, according to International Institute of Sustainable Development (IISD).  

LPG has the largest fossil fuel subsidy, making it a key source of fiscal vulnerability. India imports around 60% of its LPG, exposing subsidy spending to global price volatility. Subsidies for LPG reached Rs 71,718 crore in FY 2025, nearly half of which are under-recoveries (the losses oil and marketing companies incur when retail prices are kept below cost), says IISD analysis.

Electricity subsidies are growing faster than consumption due to higher cut-off limits for eligible consumers in some states, and LPG subsidies are tied to factors outside of the government’s control, such as surging global fuel prices.

While subsidies like this have played a critical role in expanding energy access and protecting households from high, volatile fuel prices, they risk becoming an unsustainable burden for governments.

MUST READ: LPG booking rules to change again from May 1? What gas cylinder users should know

“If prices remain elevated at current levels, under-recoveries could exceed Rs 60,000 crore in FY 2026-27, increasing pressure on public finances. Scaling alternatives such as electric cooking and decentralized biogas, while better targeting LPG support, can improve affordability and reduce long-term fiscal risks,” says Sunil Mani, policy advisor at IISD.

Subsidies for electricity consumption account for Rs 2.41 lakh crore, 58% of total energy subsidies in FY2025—nearly double their level a decade ago. These subsidies are equivalent to 20% of annual revenues for some states, with a growing share used to cover routine operating costs of power distribution companies rather than long-term efficiency improvements.

The report finds that some states need to better target electricity subsidies to low-income households to ensure support reaches those who need it most while leaving fiscal room for investments in grid upgrades and clean energy.

MUST READ: 'Diet Coke is the new LPG': Netizens shocked as their favourite drink runs out of stock

IISD’s analysis does point to growing support for clean energy. Subsidies for renewable energy reached Rs 26,406 crore in FY 2025, with nearly half of this directed to decentralized solutions such as rooftop solar and farmer-led renewable energy systems.

Support for electric vehicles also rose to Rs 16,812 crore, reinforcing their role in reducing oil dependence. Together, these shifts ease long-term fiscal pressures and strengthen energy security if supported by targeted policy and investment.
However, India’s clean energy subsidies currently still account for only about 10% of the total pot.