Falling rupee to raise burden to Rs 70k cr

The government is set to release a part of the oil subsidy bill to the oil marketing companies (OMCs) while presenting the revised estimates for 2011-12 in the winter session of Parliament.

Pointing out that this was the government's biggest concern, a senior finance ministry official said the exact amount would be based on the audit accounts of the companies. The petroleum ministry has asked for a total compensation of Rs 60,000 crore to cover the subsidy portion till the third quarter of the current financial year.

A petroleum ministry official said the amount would cross Rs 70,000 crore if the impact of rupee depreciation was factored in. He said the exact amount of payment by the finance ministry to the OMCs would depend on the decision on whether consumers’ will be asked to bear one-third of the burden or the government bears their share according to the formula applied till now. Under the present formula, the oil companies, the government and consumers each share the subsidy burden by one-third.

He said, in any case, the subsidy bill for the third quarter would be rolled over to the next financial year.

Any rise in prices of petroleum products appears unlikely at this stage due to the upcoming Uttar Pradesh elections. Petroleum minister S Jaipal Reddy also indicated at the Economic Editors’ conference last week that rupee depreciation had made it difficult for the OMCs to reduce the price of petroleum products.

The under-recovery or the revenue loss incurred by the companies in selling diesel, LPG and kerosene at controlled price is likely to be more than Rs 1,21,571 crore in 2011-12 at an average crude oil price of $110 a barrel. Of which, the OMCs would lose Rs 67,000 crore in sale of diesel and LPG subsidy would roughly amount to Rs 25,000 crore during the year.
 

COMPENSATION TO OMCs
	2008-09	2009-10	2010-11	2011-12
Budgetary support	71,292	26,000	41,000	23,460*
Upstream assistance	32,000	14,430	30,297	-
Total compensation	103,292	40,430	71,297	-
Figures in Rs crore; *budget estimate Source: Ministry of petroleum and natural gas

Gross under-recovery is likely to be Rs 21,000 crore in the second quarter, ended September 30. The petroleum ministry is seeking a reimbursement of Rs 14,250 crore from the government for the period. In the April-June quarter, the gross under-recoveries stood at Rs 43,000 crore.

The ministry of finance has indicated that Rs 15,000 crore would be given for the first quarter. The budget estimate for the subsidy bill for 2011-12 was pegged at Rs 23,640 crore and has been already exhausted in May by paying subsidy for the last financial year.

With the 2011-12 budgeted revenue already under pressure due to the sluggish economic scenario, fresh provisioning for oil subsidy is set to hit the fiscal deficit target, which has been fixed at 4.6 per cent of the GDP.