Govt prepares to puncture ballooning oil subsidy bill

The finance ministry is working on a three-pronged strategy to tackle the rising oil subsidy bill in the current financial year. The plan includes utilisation of savings, reduction in expenditure on big schemes and rollover of a part of the burden to the next financial year.

A senior finance ministry official working on the plan said petroleum subsidy was the government’s biggest concern and the final contours of the plan to tackle it would be put in place by November-end while finalising the revised estimates (RE) for 2011-12.

He said the ministry was expecting savings this year to be around Rs 20,000 crore to Rs 25,000 crore, which would be utilised for meeting a major portion of the petroleum subsidy this year. “The flash figures till August are already showing around Rs 10,000 crore savings in the plan expenditure,” he said.
 

STEEP CLIMB

* Plan involves utilisation of Rs 25,000 cr savings

* Cut in spending on rural development, health and HRD schemes

* Rollover of a part of the burden to the next financial year

* OMCs’ under-recoveries expected to be nearly Rs 1,20,000 cr this year

The under-recoveries of oil marketing companies (OMCs) are expected to cross Rs 1, 20,000 crore in the current financial year. The budgetary support to OMCs to meet the subsidy burden in 2008-09, 2009-10 and 2010-11 stood at Rs 71,292 crore, Rs 26,000 crore and Rs 41,000 crore, respectively. The government has already exhausted the Rs 20,000 crore allocation on this account this year.

The official said the plan also envisaged reduction in spending in some big schemes to meet the petroleum subsidy burden. “This year, we will be tough. Wherever in the big schemes, especially in areas such as rural development, health and human resource development (HRD), there is less spending, there will be cuts,” he said.

The total funds allocated for rural development in the Budget (2011-12) are Rs 74,143 crore, for health Rs 30,456 crore and HRD Rs 63,363 crore.

The third element of the strategy is to roll over the oil subsidy portion of the fourth quarter to the next financial year. The official said it was done last year too and the Rs 20,000 crore allocation made in the Budget this year had already been consumed in paying the remaining subsidy for 2010-11.

Though petrol prices have been decontrolled, the retail selling price of diesel, PDS kerosene and domestic LPG are still not being maintained in line with international oil prices, leading to huge under-recoveries for OMCs.

The OMCs have managed to report profits in the last three years due to the sharing of a major portion of their under-recoveries by the government and public-sector upstream oil companies.

The official stressed September was the critical month for RE calculation, which would give a concrete shape to this year’s plan of the government. “For a majority of the areas, the expenditure till September is taken for calculating RE. This is the reason why there is a spurt in spending in this month. Spending till September is taken into consideration for projecting RE in most of the cases,” said the official.

According to him, tax buoyancy was likely to cover up the shortfall in disinvestment proceeds, targeted at Rs 40,000 crore this year.