New Delhi, March 10: The finance ministry hopes to trim the oil subsidy bill in 2013-14 by tweaking the fuel pricing norm that will narrow the revenue losses of oil firms.
A senior finance ministry official said the actual oil subsidy bill in 2013-14 was likely to be lower than the budgeted estimate of Rs 65,000 crore, which in itself is 32 per cent lower than this fiscal’s revised estimate of Rs 96,879.87 crore
However, the ministry’s calculations hinge on the premise that the average price of the Indian basket of crude will be around $110 per barrel in the next fiscal, roughly the same as this fiscal, with the exchange rate hovering at Rs 55 a dollar.
A periodic hike in diesel prices for at least three quarters and the cap of nine subsidised cylinders per year have also been taken into account, besides the savings from targeted delivery of LPG subsidy using the Aadhaar card in some parts of the country.
A finance ministry official said that they expected the oil companies to increase diesel prices by Rs 0.50 per litre for at least three quarters of the fiscal after which there could be political compulsions against further hikes because of the general elections in early 2014.
A Re 1 per litre hike in the price of diesel, which constitutes about 60 per cent of the oil subsidy bill, leads to an annual saving of Rs 8,000 crore.
The war of words on under-recovery calculations, which is expected to hot up, is unlikely to have any impact on the price of diesel and LPG cylinders.
The finance ministry wants petrol and diesel to be priced at a rate they can fetch in the export market rather than the current practice of pricing the fuels after adding transportation and customs duty to the international price, which is notional as the petroleum products are produced within the country.
“As 60 per cent of the LPG are imported, the current practice of import price method would apply to that extent. But for diesel and kerosene, the compensation would be based on export pricing as crude is imported and products are made in the country,” the finance ministry official said.
The finance ministry wants to eliminate freight as well as the 2.5 per cent customs duty while fixing the price of petrol and diesel as the levy adds to the under-recoveries of the PSU oil-marketing firms without contributing any revenue to the exchequer.
Under-recovery, which is compensated by the government, is the difference between the refinery gate price and retail selling price. The elimination of freight and duty will lower the Centre’s subsidy outgo.
The government has decontrolled petrol prices, but diesel continues to be subsidised. There is no import duty on kerosene and LPG, the other two subsidised fuels. A 2.5 per cent customs duty results in an increase of Rs 1.13 per litre on the ex-refinery price of diesel. This translates into an under-recovery of Rs 18,000 crore.
Oil companies, backed by the petroleum ministry, are strongly opposed to this move as a switch to export parity prices will erode their profit.