Fuel subsidy burden to rise 12% to ~3.34 trillion in FY20

FUEL BILL PINCHES HARD Petroleum subsidy may soar by 50%; shortfall likely to be ~17,000 crore this year

The government’s subsidy burden is expected to rise by about 12 per cent to ~3.34 trillion next year, primarily on account of a massive increase in petroleum subsidy that has risen by more than half.

The total revised subsidy estimate for the current financial year will increase by ~3,713.7 crore over the Budget subsidy provision, indicating that some subsidy for this year (2018-19 or FY19) has been rolled over to the next year (2019-20 or FY20).

Petroleum subsidy that goes into providing cheap liquefied petroleum gas (LPG) and kerosene for households is estimated to rise to ~37,478 crore in FY20 compared to ~24,833.18 crore in the Revised Estimates (RE) for FY19.

K Ravichandran, senior vicepresident and group head, corporate ratings, Icra, estimates a shortfall of around ~17,000 crore in fuel subsidy for FY19 versus the subsidy provided in the RE.

“The depreciation of the rupee against the dollar, and rise in crude prices in year to date, have contributed to the shortfall. Options available to the government to bridge the shortfall are to defer the subsidy payments to oil companies to the next fiscal year, with appropriation from FY20 budgetary allocation and ask downstream and upstream companies to bear a part of the subsidy,” he said

As for FY20, the shortfall in subsidy could be about ~7,000 crore if the crude price stays at $70 a barrel and the dollar-rupee exchange rate remains at 72. “There could be a surplus if the crude were to be below $67 a barrel at a similar exchange rate,” said Ravichandran. The government’s push to provide LPG connection to poor households under the Pradhan Mantri Ujjwala Yojana reflects in the increase in LPG subsidy, estimated to be ~32,989 crore. Since households getting LPG and power connection are not entitled to subsidised kerosene, subsidy on it is estimated to halve to ~4,489 crore in two years from ~8,804.15 crore in 2017-18.

Both food and fertiliser subsidies are expected to increase by 7- 7.5 per cent next year. Finance Minister Piyush Goyal has provisioned ~1.84 trillion for food subsidy during FY20, an increase of ~12,922 crore. The estimated increase in the current year is ~71,016 crore over the actual spending of ~1 trillion in FY18, translating to a massive 70 per cent hike in the food subsidy bill for FY19.

This is primarily on account of the National Food Security Act. Most of the subsidy amount goes to the Food Corporation of India (FCI) for procurement.

In FY20, the government is expected to give the FCI ~1.51 trillion, compared to ~1.41 trillion this year. The fertiliser subsidy is expected to rise to ~74,986 crore from ~70,075.2 crore this year. However, a large part of the subsidy payment is expected to be a roll-over.