Subsiding oil subsidies

Written by fe Bureau | Updated: Aug 9 2014, 08:17am hrs
If the global crude prices and rupee remain at the current level, the government will be able to wipe out diesel subsidies within 3 months

After deregulating petrol prices, the biggest task for the government has been to reduce diesel under-recoveries. The good news is that the 50 paise per litre increase in diesel price since January 2013 has led to daily under-recoveries on diesel dropping to R1.33 a litre as on August 1 from R9.03 in January 2013. Since January 2013, diesel prices have risen by R11.25 per litre in Delhi. So, if the global crude prices and the rupee remain at the current level, the government will be able to wipe out diesel subsidies from its books within three months.

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Now, the next big step that the government has to take is to reduce subsidies on domestic LPG and kerosene. Daily under-recovery on LPG has not budged much as oil companies are losing R448 per cylinder as of August 1 and R32.98 on kerosene. In FY14, the total under-recovery in LPG was R46,458 crore and is expected to increase to R47,000 crore in the current financial year. In contrast, total oil under-recovery in FY15 is expected to decrease to R1.1 lakh crore from close to R1.4 lakh crore in FY14 and R1.6 lakh crore in FY13. The governments appeal

to those who can afford to give up LPG subsidy can help, but to a limited extent only. A better idea would be to restart LPG direct benefit transfer (DBT), which had been abruptly put on hold by the UPA government in February this year. The advantage of Aadhaar-based DBT is that it can curb leakages in LPG and kerosene to a large extent by restricting disbursal of subsidies to the targeted segment only. In fact, finance ministry data show that out of the 4 crore LPG consumers in the country who were linked to Aadhaar for LPG DBT, 6.18 lakh duplicate connections had been identified. This led to savings of R251 crore in subsidy outgo.