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Oil subsidy on slippery track

Veerappa Moily in New Delhi on Tuesday. Picture by Ramakant Kushwaha

New Delhi, Jan. 21: The petroleum subsidy bill is likely to balloon in the current financial year and the government is contemplating rolling over part of the compensation to oil firms to the next fiscal.

Petroleum minister Veerappa Moily has already moved the Union cabinet to increase the number of subsidised domestic cooking gas cylinder from 9 to 12 per year. This will further bloat the oil subsidy bill of the government which is finding it tough to stick to its fiscal deficit target of 4.8 per cent of GDP.

“I have moved a cabinet note to increase the quota to 12. I think the cabinet is likely to consider the proposal this week,” Moily said while launching 5-kg LPG cylinders at petrol pumps here today.

A subsidised 14.2-kg LPG cylinder in Calcutta costs Rs 416, while a non-subsidised cylinder comes at a market rate of Rs 1,270 per cylinder.

Increasing the limit to 12 will result in an additional fuel subsidy burden of Rs 3,300-5,800 crore for the government, officials said.

Sources said the finance ministry could roll over nearly Rs 50,000 crore subsidy to state-owned oil firms from this fiscal to 2014-15 for selling diesel, kerosene and LPG cylinder at controlled price.

If subsidies are to be paid this fiscal, officials feel, it will jeopardise budget calculations. For instance, against a budgeted Rs 65,000 crore in oil subsidies for the current fiscal, the government may end up paying Rs 1.47 lakh crore for the full year.

In the April-September period, the three retailers lost Rs 60,907 crore in revenues on diesel, LPG and kerosene sales. The finance ministry has so far disbursed around Rs 16,000 crore worth of subsidy amount for the first two quarters of this fiscal.

Indian Oil officials said the hike in the number of subsidised LPG cylinders would impact the working capital of the oil firms. “If the number of subsidised cylinders is raised, there will be no impact on the profit and loss account since the under recovery will be compensated by the government. However, it will impact our working capital requirement,” IOC director finance P.K. Goyal said.

 
 
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