The central government in India is set to pay $8.1 billion or about 450 billion rupees as fuel subsidy to state-run oil marketing firms for the fourth quarter of the 2012-2013 financial year.

The finance ministry has not confirmed the reports but oil company officials have indicated that the compensation package for the fourth quarter will allow state-run oil retailers to record quarterly profits. The central government has decontrolled the price of petrol but it partially controls diesel prices and fixes retail prices of liquefied petroleum gas and kerosene in order to keep the fuel affordable to poor in the country.

The selling of fuel under market prices leads to huge revenue losses for state-run Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL). According to latest estimates, the three firms have recorded total revenue losses of 1.6 trillion rupees in the entire financial year 2012-2013.

The finance ministry will pay about 1 trillion rupees by way of cash subsidies while the remaining subsidy will be provided through state-run upstream companies; Oil and Natural Gas Corp (ONGC), Oil India Ltd (OIL) and GAIL
(India) as discounts on sale of crude oil.