The weakening of the rupee vis-à-vis the dollar has landed the Government in a fix. While the crude oil import bill is rising, looming elections have put a question mark over the Government’s effort to benchmark domestic fuel prices with international rates.
In the current scenario, the total losses for oil marketing companies on account of selling fuel below cost — termed ‘under-recovery’ by the trade — is expected to be around Rs 1.20-lakh crore, said P. K. Goyal, Director (Finance), Indian Oil Corporation. “Every rupee fall in the exchange rate increases under-recovery by around Rs 7,800 crore,” Goyal told Business Line .
Subsidy gap
This may force yet another revision in the oil subsidy numbers, unless the Government pushes through more fuel price increases.
On May 23, Finance Minister P. Chidambaram had indicated that the oil subsidy bill would not cross Rs 80,000 crore; the Budget estimate for 2013-14 is pegged at Rs 65,000 crore.
The gap will now have to be borne by upstream public sector companies (which produce crude oil in India), unless the Government increases its subsidy payout.
In the current fiscal, the Finance Ministry has released Rs 45,000 crore to meet the losses incurred by public sector oil marketing companies.
Though the Ministry has reportedly not given any directions to the oil companies, Thursday’s meeting assumes significance because oil refineries are one of the largest buyers of dollars. At present, crude oil is the single largest item in India’s import basket.
Officials in oil-marketing companies have indicated that prices are likely to be revised next fortnight if the rupee continues to depreciate.
The Indian crude oil basket is hovering around $102.82 a barrel. It was at $101.24 a barrel in the previous fortnight (June 16-30).
The benchmark Brent crude was trading $105 a barrel on Friday. According to market watchers, it is on the way to recording its strongest weekly gain in the past one month, ahead of key US jobs data, and rising tensions in West Asia following the coup in Egypt.