Oil subsidy to fall 20% in FY15

Under-recovery for kerosene stood at Rs 30,575 cr and Rs 46,458 cr for LPG during previous fiscal

There is good news for the new finance and petroleum ministers: The under-recovery on sensitive petroleum products is set to fall 20 per cent — from Rs 1,39,869 crore during 2013-14 to Rs 1,11,000 crore in 2014-15.

According to petroleum ministry estimates, for 2014-15, the first year of the Narendra Modi-led Bharatiya Janata Party (BJP) government, the oil subsidy burden will be the lowest since 2011-12. The loss on diesel, kerosene and cooking gas (LPG) is expected to be Rs 35,000 crore, Rs 29,000 crore and Rs 47,000 crore, respectively.

“The drop in under-recovery is due to the decline in subsidy on diesel. It might fall 44 per cent — from Rs 62,837 crore in 2013-14 to Rs 35,000 crore in 2014-15. This is due to an increase in prices because of the diesel decontrol measures (Rs 9.06 a litre) since January 2013. Further, the rupee’s appreciation has also helped bring the figure down. Current calculations are based on crude oil prices of $105-108 a barrel and the rupee at about 58/dollar,” said a senior petroleum ministry official.

Under-recoveries on kerosene and liquefied petroleum gas (LPG) were seen at Rs 30,575 crore and Rs 46,458 crore, respectively, the same levels as in 2013-14. As of May 16, diesel under-recovery stood at Rs 4.41 a

litre; for kerosene and LPG, these stood at Rs 33.84 a litre and Rs 449.13 a cylinder, respectively.

Of the overall fuel subsidy last financial year, upstream majors such as ONGC, OIL India and GAIL will pay 48 per cent, or Rs 67,021 crore. Former finance minister P Chidambaram had said the government’s contribution to subsidy figures would be about Rs 70,772 crore.

Last financial year, average international crude oil prices dropped from $110-112 a barrel to $105.

“The drop in under-recoveries is primarily due to the appreciation of the rupee. An increase of every rupee against the dollar will cut Rs 10,000 crore on the under-recovery front. If the current trend continues and the BJP government goes ahead with the monthly dose of diesel decontrol of 50 paise a litre, the under-recovery on high-speed diesel will be wiped out in six months. This could even bring down overall under-recovery to about Rs 1,00,000 crore,” said Debasish Mishra, senior director, Deloitte in India. This will further fall if the government implements the suggestions of the Kirit Parikh committee. The committee, mandated to revisit the pricing methodology for petroleum products, had recommended a Rs 5/litre increase in diesel prices, Rs 250-a-cylinder rise in LPG prices and a Rs 4/litre rise in kerosene prices, with immediate effect

Currently, the state-run oil marketing companies — Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation — are incurring a daily loss of Rs 318 crore on the sale of diesel, kerosene and cooking gas.