Centre mulls rolling over oil subsidy
With the oil subsidy shooting up this fiscal year (2018
19 or FY19), the government is planning to roll over payment of a major chunk of it to the first quarter of the next year (2019-20 or FY20).
By the end of September, the petroleum ministry’s internal calculations showed that the oil subsidy for the year was estimated to cross ~460 billion. Initially it was expected to be ~250 billion. Now, the government plans to pay about
~200 billion in FY20.
The Centre is trying to meet a difficult fiscal deficit target this financial year.
The government usually compensates the companies for subsidy on liquefied petroleum gas (LPG) and kerosene. If subsidy is rolled over for at least six months, it may bring an additional interest burden of ~89 billion on oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL).
Industry officials claimed thismight well be a double whammy for the OMCs, which have taken a hit of ~45 billion for FY19 by absorbing ~1 both on prices of petrol and diesel. This was after the international crude oil prices touched $80 a barrel last month, pushing up domestic retail prices. “State-run OMCs have done enough by absorbing the additional burden. Hence, a roll-over of such amassive scale will affect their finances,” said a government official.
Other government sources said a roll-over of subsidies had to happen, as there was pressure on the fiscal deficit because of higher-than-expected spending on a number of items and anticipated shortfall in sources of revenue such as the goods and services tax (GST).
For the April to September period of FY19, subsidy figures were ~172.3 billion, of which ~139.21 billion was for LPG and ~33.09 billion for kerosene. In FY18, LPG subsidy was ~208.8 billion and kerosene subsidy of ~46.72 billion. The under recovery on per litre of kerosene is currently to the tune of ~21.23, while that of LPG is ~435.08 per cylinder.
On Friday, the Indian basket of crude oil price was at $71.11 a barrel, while the international benchmark Brent crude price was $70.48 a barrel, giving some relief to the government.
The Centre — primarily Finance Minister Arun Jaitley — has so far maintained that the fiscal deficit target for the year will be met, without compromising on capital expenditure.
However, as the exercise for the interim Budget FY20 begins, policymakers in the finance ministry are considering a number of steps to ensure there is no fiscal breach. Rolling over subsidy payments is a time-tested method. And, it is highly likely that a substantial portion of fertiliser and food subsidies could also be rolled over.
As reported earlier, the Centre could face a shortfall of more than ~1 trillion in its share of GST, and could see additional expenditures of more than ~450 billion.
Apart from the higher oil subsidy burden, the central government’s internal spending estimates show that it expects an additional outlay of ~200 billion only for the newly announced minimum support price obligations for cereals and pulses. This will be over and above the budgeted food subsidy estimate of ~1.69 trillion.
The government has also announced that it will provide an extra support of ~20 billion for Air India, over and above ~163 billion announced in the Budget. The outlay for Ayushman Bharat could also increase by ~35 billion.
When it comes to fuel subsidy payments, the full amounts are not released till the audited data comes in from the oil ministry. So a lot of the payments go out in April and May of the next fiscal year, officials said.