CRUDE PRICE IMPACT. Subsidy bill to drop to ₹40,000 cr in 2015-16

With the drop in global crude prices, oil subsidy during the current fiscal could be limited to just two-thirds of last fiscal and a little over 40 per cent of the all-time high during 2012-13.

“We estimate the subsidy Bill to be around ₹40,000 crore for the entire fiscal (2015-16),” a senior Finance Ministry official told BusinessLine .

This amount will come down further if kerosene is brought under the Direct Benefit Transfer, he added.

At present, subsidy is given on only two petroleum products, LPG and Kerosene.

Subsidy from Government on domestic LPG cylinders is ₹22.58 and 85 paise on every litre of kerosene.

Any subsidy amount, over and above these, is given by Public Sector upstream oil companies such as ONGC and Oil India. The current Budget has made a provision of ₹30,000 crore for the oil subsidy, which includes ₹22,000 crore for LPG and ₹8,000 crore for Kerosene.

This provision is based on taking an average crude price at $70 a barrel during the fiscal.

The Indian crude basket was $54.11 on April 1, which dipped to $53.71 on July 27.

While price is not an issue, the hitch is with the value of the rupee against the dollar, which is now hovering around ₹64 as against ₹62.59 on April 1.

It is likely that the rupee might fall further due to increasing outflow of foreign money from the stock market.

A $1-decrease in crude prices lowers the subsidy bill by around ₹900 crore, subject to exchange rate.

Keeping the exchange rate fluctuation in mind, the official said there could be additional requirement from the Central Government finance towards the oil subsidy.

“That provision could be made through supplementary demands for grants,” he said. Despite this, the Oil Subsidy Bill is expected to be less than last fiscal and close to the 2010-11 level.

With this, the current fiscal would be the second year in succession when the subsidy Bill for the entire fiscal would not be rolled over. It may be recalled that the Budget used to provide subsidy amount for first three quarters (April-December), while amount for fourth quarter was left for the next budget.

However, for the first time in recent years, the Government has lowered the revised estimate on oil subsidy to ₹60,270 crore from the budget provision of ₹63, 427 crore in 2014-15.

This happened mainly due to dip in crude price, along with some stability in the exchange rate.

The Government also keeps an eye on the direct benefit transfer to check subsidy pay out.

Chief Economic Advisor Arvind Subramanian estimated a saving of around ₹6,500 crore in LPG subsidy due to DBTL scheme during the current fiscal. An additional ₹500-700 crore could be added to this, if kerosene is also brought under DBT.

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