Going by the oil ministry's estimate of under-recoveries of oil marketing companies IOC, HPCL and BPCL this fiscal, it appears the government will have to carry over to next year much more than the R35,000 crore projected in the budget documents. Besides, next fiscal's allocation of government share of oil subsidy itself look grossly inadequate.
If upstream companies ONGC, Gail India and Oil India as per convention bear 40% of this year's under-recovery of R1,40,000 crore estimated by the petroleum ministry for the fiscal, the government ought to pay about R84,000 crore to fuel retailers. This broadly corresponds with the budget allocation of R85,480 crore. However, after taking into account the R45,000 crore subsidy requirement of Q4 of 2012-13 rolled over to current fiscal, what oil marketing companies can actually account for in their books this fiscal is just R39,000 crore. That leaves about R40,480 crore of unmet subsidy liability from 2013-14 to be carried over to 2014-15. This is much higher than the payment postponement of R35,000 crore admitted by the finance minister in the interim budget.
In the wake of this, the oil subsidy allocation of R63,427 crore for 2014-15 clearly looks a serious understatement as that implies a subsidy burden of just R22,947 crore for the year.
Inclusive of R40,000 crore of unsettled dues to Food Corporation of India (FCI) and the R38,000 crore estimated by the fertiliser ministry as the difference between the revised outlay and subsidy requirement of fertiliser industry this fiscal, the total subsidy payment postponed would therefore be a whopping R1.18 lakh crore.
In what seemed to correspond to FE's analysis of oil subsidy budgeting, rating agency Moody's said on Wednesday that "excluding the R45,000 crore paid out to OMCs in the current fiscal for the previous fiscal's under-recoveries, the budget provision of R80,800 crore leaves only R35,800 crore for reimbursements in the current fiscal. This implies a shortfall of R42,200 crore, according to our calculations."
For the budget math to hold true, the government not only has to boldly carry out reforms of fuel and urea pricing but also has to increase the burden on upstream companies further. ONGC has long complained of the rising burden of fuel subsidy and said this has been hampering the much-needed capex plans. GAIL India's demand for exempting it from having to bear subsidies has been