Government will now cover up to half of the subsidy for state-run oil companies to sell fuels like kerosene below cost, oil minister S Jaipal Reddy said on Tuesday.
The country currently has an informal system where the government has compensated state-owned oil marketing firms for 30% of the cost of selling fuels such as gas oil and cooking fuels including liquefied petroleum gas and kerosene at below market rates set by the government.
The move by the government to formalise the arrangement and pay a greater share would raise the burden on the country's finances but could mean an improvement in profits at state-run oil companies.
Reddy added the total amount of under-recoveries among the state-run retailers could reach 1 trillion rupees, higher than a 750 billion rupee cost estimated by the head of Indian Oil.
($1=45.4 Indian rupees)