The Centre's oil subsidy bill for the current fiscal is set to overshoot the Budget estimates by 40 per cent to Rs 9,000 crore (Rs 90 billion).

Estimated at Rs 6,495 crore (Rs 64.95 billion) for 2002-03, the subsidy on oil will surpass it by far, according to the most recent finance ministry estimates.

However, the ministry expects to contain the subsidy at Rs 6,000 crore (Rs 60 billion) in 2003-04.

The finance ministry is wrestling to limit total government expenditure for 2002-03 to the Rs 4,10,000 crore (Rs 4.1 trillion) set out in the Budget for 2002-03.

The subsidy for the petroleum sector is the second highest after that on food, which was budgeted at Rs 21,200 crore (Rs 212 billion) in 2002-03.

The Centre now subsidises kerosene and liquefied petroleum gas for cooking, transportation of retail products to the Northeast and far-flung areas, irrecoverable levies of oil companies from state governments and under-recoveries by oil companies due to sales tax on aviation turbine fuel for foreign airlines.

Of this, Rs 4,495 crore (Rs 44.95 billion) was meant for kerosene and LPG in 2002-03 while Rs 1,530 crore (Rs 15.3 billion) was meant to compensate for the tax on aviation turbine fuel sales.

But the most recent estimates show that the kerosene and LPG subsidy alone has overshot the target by Rs 2,000 crore (Rs 20 billion). Finance ministry sources said this was because the Centre had no clear idea of the extent of subsidy on oil and had pencilled in a best estimate in the Budget for 2002-03.

The sources added that with a year's experience and with the decision to freeze the percentage of subsidy on kerosene and LPG, it would be possible to rein in the bill at about Rs 4,500 crore (Rs 45 billion) for the next fiscal.

The petroleum subsidy came upfront in the Budget estimates for 2002-03 for the first time because the administered price mechanism and the oil pool account were dismantled.

Under this account, the oil companies exercised a complex system of subsidies on retail prices of kerosene and LPG by charging a higher retail price for petrol, diesel and aviation turbine fuel.

With the abolition of the system, the Centre incorporated the subsidies explicitly in the Budget and let the final prices of fuel move with the import price of crude.