The Hindu Business Line : LPG, kerosene subsidy in for cut

LPG and kerosene consumers can expect a steep hike in prices of the two products in April, aggravated by the Government's decision to reduce the subsidy on these products by one-third in the Interim Budget.

At present, the public sector oil marketing companies are losing around Rs 80-Rs 90 per cylinder and Rs 1.20 per litre on kerosene that they sell to consumers. This will go up by another Rs 23 per cylinder in the case of LPG and an additional 80 paise per litre in the case of kerosene, hence increasing the pressure for companies to undertake price revisions, especially after the forthcoming elections.

The Budget has proposed a subsidy allocation of Rs 3,500 crore for fiscal 2004-05 towards sale of kerosene and LPG, down from Rs 6,292 crore in the previous year (fiscal 2003-04). On the face of it, it looks like there is a reduction of around 45 per cent down to Rs 3,500 crore. However, the allocation during fiscal 2003-04 included an allocation of Rs 2,200 crore for the previous year's subsidy bills. Hence, in real terms, the subsidy is being pared by one-third every year.

The Interim Budget has done away with compensation of irrecoverable taxes for fiscal 2004-05. Not only that, it has also pared the Budgetary allocation during the current fiscal from Rs 1,500 crore to Rs 200 crore. The major impact of this decision will be felt by Reliance Industries Ltd's 30-million tonne Jamnagar refinery which availed around Rs 500 crore from this account last fiscal. Not having their own retail outlets to sell its products, the petroleum major is selling its products to public sector oil marketing companies.

However, such sales attract a 4 per cent central sales tax, which is absent in the case of public sector sales since they undertake depot transfers. Hence, if Reliance seeks to sell its products through the public sector channel, assuming there is a demand, they would require to absorb the sales tax component, seek a waiver from the State Government or undertake exports. This year, Reliance is on course to sell around 13 million tonnes of products through the PSU route.