Diesel subsidy for 2013-14 could be capped at Rs 6/litre
in consonance with movement of international oil prices,” said a government official privy to the development. Finance minister P Chidambaram may hint at the capping of subsidy while presenting the budget proposals for 2013-14.
Current global crude oil price is around $113 per barrel, while international petrol price (also known as MS price) is at $128/barrel. Government fears that further upward movement in oil prices during 2013-14 would extend the goalpost for diesel de-regulation, due to the increase in under-recoveries of oil marketing companies.
Capping subsidy would, therefore, come to the government’s rescue as it would warrant steeper monthly hikes in diesel prices.
The finance ministry wants to keep its subsidy bill to less than 2% of GDP so that is able to check fiscal deficit that is expected to be around 5.3% this year and projected at 4.8% in 2013-14.
At current global oil prices, under recovery on diesel will become nil in the next 22 months. The under recovery on diesel at present is Rs 10.27/litre. Ever since the announcement of 45-50 paise increase in diesel price per litre every month on January 17, the product price has been adjusted twice.
“Apart from volatility in global oil prices, next year’s general elections and elections in several states this year could also interrupt regular hikes in diesel prices. This has been understood well in government circles and therefore the move to cap subsidy,” said an oil ministry official.
Of the 2012-13 fuel subsidy outlay of Rs 43,600 crore, Rs 38,500 crore was used for payment
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