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Cheap oil prunes subsidy bill

Outgo to contract 8.5 per cent on price reform for automotive and cooking fuel

BS Reporter  |  New Delhi 

Marking a significant departure from the past several years, the government has managed to project an 8.5 per cent reduction in the subsidy outgo for 2015-16 on the back of price reforms in petroleum products and the easing of global oil prices.

The government expects the petroleum subsidy alone more than halved to Rs 30,000 crore from Rs 60,270 crore anticipated this year..

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Inclusive of interest subsidy, the overall subsidy at Rs 2,43,810.98 crore would be 1.7 per cent of Gross Domestic Product (GDP) next year against 2.1 per cent in the current year based on the government’s advance estimates for GDP. The current year, however, has seen a marginal increase of Rs 6,034 crore in the total subsidy bill, despite the petroleum subsidy coming down by about 5 per cent, mainly on account of of higher food and interest subsidies.

At Rs 63,426.95 crore, the government's outgo on account of pricing cooking gas and automotive fuel below market price is, however, about 30 per cent lower in 2014-15 over the previous year (2013-14). “The provision for petroleum subsidy will be sufficient to meet the subsidy for 2015-16 and the carried forward amount of around Rs 8,400 crore from 2014-15, because of significant fall in gross under-recoveries for the sector in the second half of the current year,” said K Ravichandran, senior vice-president, Corporate Sector Ratings, ICRA.

ICRA estimates gross under recoveries at Rs 77,000 crore and Rs 42,500 crore for 2014-15 and 2015-16 respectively, at an average global crude oil price of $60 a barrel and exchange rate of Rs 62 a dollar. “Assuming 50 per cent share of government for meeting the under recoveries, the subsidy provided for 2015-16 should be adequate. Cash flows for the oil marketing companies should, therefore, be healthy in 2015-16, which will also keep their short term borrowing requirements and interest costs lower than 2014-15,” he said. However, key risks would be any sharp rise in global prices and weakening of rupee in the near term.

Unlike petroleum, both the food and fertiliser subsidies are expected to rise marginally. The food subsidy bill at Rs 1,24,419 crore is expected to go up 1.4 per cent next year over the revised estimate for 2014-15 of Rs 1,22,675.81 crore. The food subsidy includes a provision of Rs 64,919 crore for the National Food Security Act which means that the programme is unlikely to be implemented in full. Even in the current year, the food subsidy is estimated to shoot up by about seven per cent over what was estimated in the last July.

At Rs 72,968.56 crore, however, the provisioning for the fertiliser subsidy for next year is 2.8 per cent higher than 2014-15.

Besides these big-ticket items, Union Finance Minister Arun Jaitley said Rs 5,300 crore would be provided to support micro-irrigation, watershed development and the Prashna Mantri Krishi Sinchai Yojana. Another, Rs 25,000 crore has been provided for Rural Infrastructure Development Fund set up in Nabard, Rs 15,000 crore for long-term rural credit fund, Rs 45,000 crore for short term cooperative rural credit refinance fund and Rs 15,000 crore for short-term RRB refinance fund. “I have set an ambitious target of Rs 8.5 lakh crore of credit during 2015-16 which I am sure banks will surpass,” he said in his speech.

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First Published: Sun, March 01 2015. 00:39 IST