FUNDING SUBSIDIES: India will have to rely on its budget for the financial year ending March 2015 to fund part of the current financial year’s oil subsidies bill, said Fitch Ratings. — Reuters photo
NEW DELHI: India will have to rely on its budget for the financial year ending March 2015 to fund part of the current financial year’s oil subsidies bill, said Fitch Ratings.
The government allocated 650 billion rupee for petroleum subsidies in financial year 2014, of which 450 billion rupee was used to pay oil-marketing companies for the subsidy gap incurred in the previous financial year.
This leaves the government with INR200 billion to meet its share of the shortfall between the subsidised price and the market price, known as under-recovery.
“This is likely to be insufficient, and it is likely that the state will have to tap around 450 billion rupee from next year’s budget,” said Fitch in a statement.
For the first half of the current financial year, the total under-recovery from diesel, public distribution kerosene and household liquefied petroleum gas (LPG) stood at 609 billion rupee, with diesel accounting for 283 billion rupee.
Assuming the under-recovery in the subsequent two quarters is around 400 billion rupee each, the total financial year 2014 under-recovery would be 1,400 billion rupee compared with 1,610 billion rupee in the 2013 financial year.
In January, the government took steps to further deregulate the petroleum sector by allowing diesel for industrial use to be priced at market prices, and also allowed refining and marketing companies to increase the prices for retail diesel by 0.5 rupee a month.
This led to a steady decline in the diesel under-recovery.
The government also limited the number of subsidised liquefied petroleum gas (LPG) cylinders (on which it incurred an average subsidy of 408 rupee each) to nine per family per year, which will likely reduce the subsidy for the LPG segment in the second half of the 2014 financial year.
The math of how the 2014 financial year’s subsidy on petroleum products will be shared between the government, the upstream players – Oil and Natural Gas Corporation (ONGC), OIL India and GAIL Ltd (BBB-/Stable) – and the R&M companies – Indian Oil Corporation Ltd (BBB-/Stable), Bharat Petroleum Corporation Ltd (BBB-/Stable) and Hindustan Petroleum Corporation Ltd – is still fluid. — Bernama