Govt likely to use reserve oil funds to finance fertiliser subsidy gap

The Oil Industry Development Act allows for the OIDF money to be utilised for fertilisers

For the first time, the government is likely to dip into the Oil Industry Development Fund (OIDF) to finance part of its fertiliser subsidy programme for 2025-26, according to official sources.

 

The finance ministry has accounted for ₹23,000 crore in the FY26 Budget as net additional resources to be drawn from dedicated reserve funds, including the OIDF, the Agriculture Infrastructure and Development Fund, and the Universal Service Obligation Fund.

 

Experts believe that while the government’s reliance on off-Budget borrowing has ended, accessing funds within the public account could help marginally reduce the fiscal deficit while maintaining transparency.

 

"The Oil Industry Development Act allows OIDF money to be used for fertilisers. We are now targeting the fund appropriately. Earlier, it was fungible,” an official source said.

 

The FY26 Budget has highlighted the use of such reserve funds as a sound fiscal management practice and to have better accounting for the utilisation of these funds. Collections from the oil cess are transferred to the OIDF.  

 

The Oil Industry (Development) Act, 1974, was enacted in response to successive and steep increases in international crude oil and petroleum product prices since 1973, when achieving self-reliance in petroleum and petroleum-based industrial raw materials became a priority. The cess levied on crude oil and natural gas went to the OIDF, created under the Act.

 

According to the Annual Report of the Oil Industry Development Board (OIDB), the fund had accumulated ₹12,040.50 crore as of March 31, 2024, contributed by cess receipts and internal resources generated by the OIDB.  

 

Reserve funds are created when the government sets aside surplus funds for specific expenditure purposes. These funds are maintained in public accounts to ensure transparency.

 

The Centre has set a fiscal deficit target of 4.4 per cent of GDP for FY26, down from the revised estimate of 4.8 per cent for FY25.

 

The FY26 Budget estimates total subsidies for fertiliser, food, and petrol at ₹3,83,397 crore — 0.01 per cent lower than the revised estimate for FY25 and just 0.6 per cent higher than the budget estimate for FY25.

 

For fertiliser subsidies, the Budget has allocated ₹1,67,887 crore, a 2 per cent decrease from the revised estimate of ₹1,71,299 crore for FY25.

 

The statement on the position of major reserve funds operated in the public account indicates that ₹11,600 crore of the fertiliser subsidy will be drawn from the OIDF reserve fund.