Burden swelling on crude shock

The Economic Survey has pointed to a rising subsidy burden on account of a global rally in crude oil prices even as the Budget Estimates of 2010-11 (Rs 1,09,092 crore) indicate a decline in subsidy over the provisional estimates of Rs 123,396 crore for 2009-10. The subsidy-to-GDP ratio is also expected to increase due to a higher subsidy of fertilisers and food items.

“Following the global financial crisis, there was a brief respite; nevertheless, global crude prices have started to trend up,” the survey said. This rise in subsidies owes to the elevated levels of global crude oil prices and controlled prices in the domestic market. It is also reflected in fertiliser subsidies as cost of feedstock is the major cost. “Some of the subsidies were also not targeted properly,” it said.

The Survey also refers to the steps taken to restructure the subsidy regime in petroleum and fertilisers. As a first step, pricing of petrol (motor spirit) was freed and a modest increase in administered prices of kerosene and LPG (liquefied petroleum gas) was announced. The retail selling price of kerosene meant for the public distribution system (PDS) was increased by Rs 3 a litre and that of domestic LPG was increased by Rs 35 per cylinder of 14.2 kg. In fertilisers, a nutrient-based subsidy policy was put in place.

The Survey points to the government’s commitment towards ensuring the availability of cooking fuel to the common man at affordable prices. In view of the importance of household fuel like kerosene and domestic LPG, the government has decided that the subsidies on these products will be continued. The PDS Kerosene and Domestic LPG Subsidy Scheme 2002 as well as the Freight Subsidy (for Far-flung Areas) Scheme of 2002 have been extended till March 31, 2014.