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Will Arun Jaitley’s Budget ‘float like a butterfly’ or ‘sting like a bee’ is the question consumers as well as the players in oil and gas industry are asking.
If he continues with the subsidy and keeps fuel prices suppressed, then he definitely will please consumers, but not the industry. Besides, spiralling crude prices may prove a spoiler for the Finance Minister. The industry is seeking clarity on domestic LPG price, cap on the number of subsidised cylinders available to each household annually and the implementation of direct benefit transfer of subsidy. The subsidy burden on LPG alone during 2013-14 was ₹46,458 crore, up from ₹39,558 crore in 2012-13.
The issue of subsidy, which impacts the finances of marketing companies, public sector upstream companies such as ONGC and Oil India (who share the subsidy burden by offering discounts to marketing companies) and suppresses competition, has to be clarified to achieve the goals the Ministry has highlighted in its presentation before the Prime Minister.
The options before Jaitley are not many. As the BJP wants subsidy to be extended to those who need it the most, some steps need to be taken to protect the finances of the public sector oil marketing companies – which would mean gradual freeing of pricing.
“Subsidy cannot be removed overnight, but fundamentals of the oil companies also need to be restored,” an industry official said. The Ministry is seeking to bring down the number of subsidised cylinders available for each household to nine a year. But the decision has direct political implications. Allowing a gradual increase in LPG price is an option.
Artificially controlled domestic fuel retail pricing has also impacted competition from the private sector, which has been seeking a level-playing field.
On the upstream front, exploration and production companies want clarity on the definition of mineral oil, the concept of ‘undertaking’, and extension of tax holiday benefit to 15 years, among others. While July 10 is what the industry is looking at, some decisions like increasing domestic LPG, PDS kerosene, diesel prices, can be taken outside Budget, if the current decision-making trend of the Government is anything to go by.
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