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Crude oil slump to cut subsidies by Rs 35k cr

Modi govt likely to see windfall gains in April-June quarter; more room to spend on public infra

Arup Roychoudhury  |  New Delhi 

With oil price at below $60 a barrel and benefits of decontrolled diesel and petrol fully realised, the Narendra Modi-led government is likely to see windfall savings of between Rs 30,000-35,000 crore on combined major subsidies in April-June quarter of 2015-16, Business Standard has learnt.

The outgo for major subsides, which includes fuel, food, and fertiliser subsidies, is traditionally the highest in the first quarter (April-June) of any given financial year, as it includes pending payments and outlays for carried over subsidy demands. With subsidy numbers for April and May already available for the fiscal planners, senior government sources seem confident that the trends for the first quarter, and indeed the whole financial year, in terms of year-on-year (y-o-y) reduction in the subsidy bill, look promising. Sources say the total combined major subsidies for the first two months of the current financial year was around Rs 49,557 crore. That is a whole Rs 21,693 crore or around 30 per cent less than Rs 71,250 crore in major subsidy outlays for April and May of 2014-15.

The biggest reason for this reduction is that compared to Rs 23,931 crore in fuel subsidy payments in the first two months of the last financial year, there were no payments at all for April and May this year. Simply put, fuel subsidy burden in the first 61 days of 2015-16 financial year was zero, primarily because unlike other years, there were no rolled-over subsidy demands from January-March 2014-15 quarter.

“There are no under-recoveries in diesel and petrol, as they are market-linked. As of this year, LPG subsidy payments will only be through direct benefit transfers (DBTs). That leaves kerosene, and the Centre and states are working on a solution for that as well. The trends look good for this year, and going by what the first two months show, one could see savings of Rs 30,000-35,000 crore in the first quarter of the year,” a senior official said.

There was also a slight reduction in subsidy for decontrolled fertilisers for April and May, but it was more than offset by an increase in subsidies for food and indigenous fertilisers. For the full financial year, combined major subsidies are budgeted at Rs 2.27 lakh crore, with Rs 1.24 lakh crore for food, Rs 72,968.56 crore for fertilisers, and Rs 30,000 crore for oil subsidies. This compares with Rs 2.54 lakh crore revised estimates for 2014-15, with Rs 60,270 crore for oil, Rs 70,967 for fertiliser and Rs 1.23 lakh crore for food subsidies. “For the rest of the year, we will see further savings realised as the public distribution scheme (PDS) for food, and the direct benefit transfer for LPG start to show benefits,” said a second government official.

As reported earlier, the government is set to save a little over Rs 10,000 crore in petroleum subsidy - a third of the budgeted amount - in the current financial year, thanks to the successful nationwide rollout DBT scheme. The scheme has already eliminated around 40 million ghost connections. The savings in major subsidy heads will give the Centre extra room to spend on crucial public infrastructure, which has become one of the post-poll promises of this government, as it looks to boost growth in a period of slowdown in private sector investment in infrastructure.

The Centre’s capital expenditure in the first half of the current financial is likely to rise a little more than 25 per cent over the year-ago period, to Rs 1.25 lakh crore. In 2014-15, capital expenditure in the April-September period was Rs 99,100 crore, a rise of only 2.3 per cent over the corresponding period the previous year.

  • Global oil prices at below $60 a barrel, savings from petrol, diesel decontrol fully realised
  • Officials say trends for April-June and FY16 look encouraging
  • April-May fuel subsidy outlay was nil compared to Rs 71,250 cr for same period last fiscal
  • No rollover from Jan-March quarter of last fiscal
  • Savings from PDS for food and DBT for LPG to also be realised for rest of the year

First Published: Fri, July 10 2015. 00:40 IST