News Business Govt has to shift part of oil subsidy bill to next year: Fitch

Govt has to shift part of oil subsidy bill to next year: Fitch

New Delhi: Rating agency Fitch Monday said government may have to shift part of the soaring oil subsidy bill of the current financial year to the next fiscal.The government had allocated Rs 65,000 crore for

govt has to shift part of oil subsidy bill to next year fitch govt has to shift part of oil subsidy bill to next year fitch
New Delhi: Rating agency Fitch Monday said government may have to shift part of the soaring oil subsidy bill of the current financial year to the next fiscal.





The government had allocated Rs 65,000 crore for petroleum subsidies in 2013-14, of which Rs 45,000 crore has already been utilised to pay the oil marketing companies to meet their subsidy requirement of previous financial year.

The government is now left with Rs 20,000 crore to meet the subsidy burden, arising out of under-recoveries of OMCs.

"This is likely to be insufficient, and it is likely that the state will have to tap around Rs 45,000 crore from next year's budget," Fitch said in a report.

In April-September period of the current fiscal, the three oil retailers -- IOC, HPCL and BPCL-- have lost Rs 60,907 crore in revenues on diesel, LPG and kerosene sales, with diesel alone accounting for Rs 28,300 crore.

"Assuming the under-recovery in the subsequent two quarters is around Rs 40,000 crore each, the total FY14 under-recovery would be Rs 1,40,000 crore," Fitch said. In 2012-13, the under-recovery was higher at Rs 1,61,000 crore.

Retailers oil companies sell diesel and cooking fuel at rates which are way below cost. The losses they incur are met by government cash subsidy as well as through support from upstream firms like GAIL and ONGC.

In January 2013, the government partially deregulated diesel prices, allowing the fuel for industrial use to be priced at market prices, and also permitting refining and marketing (R&M) companies to increase the prices for retail diesel by Rs 0.5 a month.
Also it capped the number of subsidised LPG cylinder to nine per family in a year.

This led to a steady decline in the diesel under-recovery, Fitch said.

"With a general election in early 2014, the government's ability to pass on sharp petroleum price increases to consumers on top of the usual small monthly increases would be limited. At the same time, the government is under pressure to reduce its budget deficit, to which petroleum subsidies are a large contributor," it added.

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