Crude jump: Subsidies unlikely to overshoot budget estimate

India's oil import bill will jump due to rise in crude prices following lower output call by Opec as well as a steep fall in the rupee, but the oil subsidy burden is unlikely to cross the budget estimate of Rs 17,000-19,000 crore this year, says a report.
The oil import will rise by USD 4 billion through the rest of the fiscal year if crude remains at USD 55 a barrel level, said the report by credit rating agency Icra.
This will see the annual gross under-recoveries (GURs) on subsidised LPG and kerosene increase by Rs 1,200-1,500 crore for the current fiscal, Icra Corporate Sector Ratings head K Ravichandran said.

After years of dilly-dallying, Organisation of the Petroleum Exporting Countries (Opec) on November 30 agreed to cut production by 1.2 million barrels a day from January. The oil cartel's decision yanked up global crude prices by 5 per cent, taking the Brent rates to USD 54.
"With crude prices of USD 50-60 for the remaining months of this financial year, we project the oil subsidy bill to be Rs 17,000-19,000 crore for year, which though will be well within budget allocation of Rs 27,000 crore. Thus, the fiscal position is unlikely to be affected," he said.
Actual GURs stood at Rs 7,830 crore in the first half.

Similarly, impact of higher crude prices on the fiscal position may also be limited next fiscal year because GURs will not increase significantly as there are regular fortnightly hikes in prices of subsidised LPG and kerosene.

On the impact on forex outgo, Ravichandran said the crude price jump and the ongoing fall in the rupee are expected to increase net crude oil and petroleum products import bill by USD 4 billion if the prices average at USD 55 a barrel for the rest of the year.
The average crude price during the April-November period of 2016-17 was USD 45 a barrel.

On the impact of this on inflation, he said the average WPI inflation may rise by 50 bps, while CPI may have lower impact of 20 bps during December through March.
As per existing under-recovery (losses from selling fuel below cost) sharing formula, the government takes a hit of Rs 255 per cylinder, or Rs 18/kg of LPG, while on kerosene it is Rs 12/litre.
On the impact on the upstream companies like ONGC and OIL, Ravichandran said they will benefit as their net realisations would increase with nil or minimal under-recovery burden if the crude does not overshoot USD 60 a barrel. The private players will directly gain from higher crude prices.

The downstream companies are expected to report inventory gains in the December quarter resulting from spike in crude and petroleum prices, he said.