Not just explicit cuts, tweaked subsidy math also to help FM

On subsidy payments, Citi Research recently said the government might defer at least 50% of its payment share of R1 lakh crore in 2012-13 to next year. It actually did slightly better and to be precise, the oil subsidy payment by the Centre this fiscal will be R60,080 crore. This factors in the comfort letter issued by the finance ministry last week to oil companies, promising an additional cash subsidy of R25,000 crore. (Oil firms had posted profits in the second quarter after reporting heavy losses in the first quarter, thanks to release of R30,000 crore earlier this year. Of the budgeted fuel subsidy outlay of R43,580 crore, R38,500 crore was used to pay the 2011-12 dues).

Of course, the proposed monthly hikes in retail diesel prices (till the under-recoveries are nullified in some to years) and the deregulation of bulk diesel prices that accounts for a fifth of the fuel’s consumption would bring significant savings on the subsidy bill – 0.5% of GDP in 2013-14 according to Citi Research. Put differently, the gross fuel subsidy bill could be around Rs 1.1 lakh crore next fiscal as against an estimated Rs 1.6 lakh crore this fiscal. The government’s share of next year’s oil subsidy burden would be Rs 69,800 crore as against over Rs 1 lakh crore this fiscal. If export-parity pricing is

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