The Finance Minister, Mr Pranab Mukherjee, has increased the subsidy payout provision to public sector oil companies instead of reducing duties on petroleum products and crude oil.

While this subsidy payout will reduce the impact of higher international crude oil prices on oil companies to some extent, with no change in duties the consumers may have to prepare for a higher retail price.

The provision

In Budget 2011-12, Mr Mukherjee has provided for a petroleum subsidy of Rs 23,640 crore. This, however, was lower than the revised estimates of Rs 38,386 crore for 2010-11.

For 2010-11 the budget estimate was Rs 3,108 crore, and the revised estimated stood at Rs 38,386 crore towards petroleum subsidy. The decrease in the estimate for 2011-12 was due to higher petroleum subsidy paid to OMCs in the revised estimates for 2010-11.

The petroleum subsidies for 2011-12 factors in subsidies for domestic LPG, and PDS kerosene, freight subsidy for far-flung areas, under-recoveries of oil companies and other related compensation.

The customs duty on crude oil is at five per cent and that on petrol and diesel at 7.5 per cent. Petrol excise duty remained at Rs 14.35 a litre and diesel at Rs 4.60 per litre.

Cash subsidy

Expressing concern over the misuse of subsidies, the Finance Minister said that the Government will move towards direct transfer of cash subsidy on kerosene and fertilisers for people living below poverty line.

A task force headed by Mr Nandan Nilekani is working out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers, he said. “The interim report of this task force is expected by June this year,” he said, adding that the system will be in place by March 2012.

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