Modi government seems to be taking a lot of comfort from the low crude oil prices while banking on the domestic distribution reforms as it has projected a sequentially lower petroleum subsidy in the next two financial years. The government, in its Mid-Term Expenditure Framework tabled in Parliament on Thursday said that the petroleum subsidy bill will be at Rs 18,000 crore in the next financial year 2018-19, and will further fall to Rs 10,000 crore in the following year 2019-20. The figures compare with the Rs 25,000 crore that the government has budgeted for petroleum subsidies in the current financial year 2017-18.
Globally, crude oil prices are under pressure, although those have recovered to some extent from the lows seen early this year. Today, Brent crude, the global benchmark, was up 18 cents, or 0.3%, at $52.88, after falling slightly earlier. It closed up 1.1% on Wednesday, snapping two days of declines. US West Texas Intermediate (WTI) crude was up 16 cents, or 0.3%, at $49.72, after declining earlier. The contract gained 0.8% in the previous session.
Back home, the government has over the past several years gradually deregulated petrol and diesel prices, freeing the state exchequer of a huge subsidy burden. It is also increasing the prices of LPG (domestic cooking gas) in pockets, and is taking steps to check leakages in distribution by transferring subsidies directly to the eligible households, again leading to huge savings for the exchequer.
As for fertiliser, another one of the three major areas of the government’s subsidy expenditure, it has kept the estimate at Rs 70,000 crore each for both the years through financial year 2019-20, keeping it unchanged from that in the current fiscal and last fiscal 2016-17. This is despite the fact that there is a growing clamour from the industry to increase the subsidy on it. Modi government has started a programme for coating of Urea earmarked for fertiliser purposes, making it unsuitable for industrial use and thus helping check the diversion of the subsidised feed to commercial units.
The third, and the largest item on the list is food, with the government estimating the food subsidy bill for the year 2018-19 and 2019-20 at Rs 1.75 lakh crore and Rs 2 lakh crore, respectively. The food subsidy is estimated to rise from Rs 1.45 lakh crore earmarked for the current financial year 2017-18. The government’s total expenditure may increase to Rs 23.4 lakh crore in the next financial year 2018-19, the mid-term expenditure framework said.
Earlier in February, Finance Minister Arun Jaitley, in the Union Budget for the fiscal 2017-18, tried to balance the requirements of increasing public spending in order to spur the economy and keeping the fiscal deficit in check. He has set a target of limiting fiscal deficit for the next financial year 2017-18 at 3.2% GDP, relaxing it slightly from 3% as was mandated in the FRBM Act. At the same time, Jaitley’s budget increased spending in rural areas and infrastructure, and specially providing major impetus to low-cost housing sector.