Rediff.com  » Business » Budget 2012: Rs 2 lakh-cr oil losses may play havoc with govt plans

Budget 2012: Rs 2 lakh-cr oil losses may play havoc with govt plans

March 19, 2012 17:29 IST
The government's plans to reign in petroleum subsidies to plug the fiscal deficit next financial year are in jeopardy, as a whopping Rs 2.13 lakh-crore revenue loss is expected at the current levels of global crude oil prices and domestic retail prices of controlled products.

Non-revision of diesel, LPG and kerosene prices, firm crude oil prices and a weak rupee may combine to foil Finance Minister Pranab Mukherjee's subsidy-reduction plans.

Mukherjee has provided Rs 40,000 crore towards compensating oil marketing companies for losses on the three controlled products next year but the companies see their under-recoveries hitting an all-time high of Rs 2.13 lakh crore if prices are not raised and crude oil remains around $125 a barrel.

The Budget provides little scope for meeting the under-recoveries of oil marketing companies. Even if the current formula is continued for the next fiscal, the government's share of Rs 1.32 lakh crore at 62.1 per cent of Rs 2.13 lakh crore will be much higher than provided in the Budget.

It is not a good Budget for us," said P K Goyal, director (finance), Indian Oil Corporation.

Even if retail prices are revised in April, it is practically impossible for the government to allow a rise that meets the full under-recovery on the products, though it may bring down the overall subsidy burden.

The companies book under-recoveries or revenue losses when they are unable to sell petroleum products on 80 per cent parity with the price the products would fetch if imported.

For 2012-13, a finance ministry official said an average price of $120 a barrel for crude oil had been assumed while making the Budget calculations. Currently, the benchmark Indian basket is moving in a $122-125 band.

Interestingly, the government has been under-providing for petroleum subsidy at the Budget stage for several years. This has resulted in the revised and actual outgo increasing many times by the year-end.

For instance, Budget 2011-12 provided Rs 20,000 crore for meeting under-recoveries but the revised estimates presented last week pegged it at more than three times, around Rs 65,000 crore.

Mukherjee said the government planned to take the necessary measures to keep petroleum and other subsidies at a level below the current year's requirement to keep overall subsidies under two per cent of GDP.

In the current fiscal, the government outgo on all subsidies (petroleum, food and fertilisers) is pegged at 2.34 per cent of GDP. Goyal said the situation was worrying, as the government's fiscal deficit had touched 5.9 per cent of GDP against the target of 4.6 per cent.

Under the current subsidy mechanism, 37.9 per cent under-recoveries on three petroleum products is shouldered by the government-controlled upstream oil and gas producing companies, ONGC, OIL and GAIL, in the form of discounts on their sales to oil marketing companies. The rest is supposed to come from the government.

In the current fiscal, the under-recovery is estimated at Rs 1.4 lakh crore. The three government-owned oil marketing companies, Indian Oil, Bharat Petroleum and Hindustan Petroleum, together meet the entire domestic demand for diesel, kerosene and domestic cooking gas at government-dictated prices.

Ajay Modi in New Delhi
Source: source
SHARE THIS STORY