In a bid to curb subsidies that threaten to derail the government?s ambitious fiscal consolidation agenda, the Centre is likely to let oil PSUs sell diesel and petrol at market prices. This will ensure the government does not provide huge sums as compensation to PSUs for losses incurred by them on account of selling fuel products below cost.
Participating in the Idea Exchange programme of The Indian Express, finance minister Pranab Mukherjee said, ?There is a valid argument that instead of government taking the responsibility, if it is left to oil marketing companies to decide and determine the price (of diesel and petrol) looking into the market price, perhaps they would be more realistic as the government?s decision-making process is conditioned with so many things.?
With Euro zone countries facing an economic crisis, global crude oil prices have dropped to $70 a barrel levels. Many in the government see it as an opportune time to do away with the administered pricing mechanism for petroleum products.
Mukherjee, who chairs a group of ministers (GoM) on fuel pricing, has provided only Rs 3,108 crore for meeting petroleum subsidies in 2010-11 compared with Rs 14,954 in the previous financial year. The expert panel had recommended dismantling the APM on petrol and diesel, but said the government may continue to subsidise kerosene and cooking gas.
What is weighing heavily on Mukherjee?s mind is upholding the sanctity of the fiscal deficit target set at 5.5% of the GDP for 2010-11. ?If I want to bring down the fiscal deficit, first I will have to make a change in our concept. I will have to live within my means and I will have to cut my coat according to the cloth,? he said.
Of the estimated total subsidy bill of Rs 106,000 crore for 2010-11, fertilizer subsidy alone accounts for Rs 42,000 crore. Mukherjee has taken a bold decision not to opt for below-the-line budgeting by providing for petroleum subsidies through bonds. ?I am still making provision (for oil subsidies) but not in the form of bond. I will like to give subsidy straight so that people can understand it,? he said.
In 2009-10 fiscal, the under-recovery (revenue loss due to selling fuel below cost) was projected at Rs Rs 46,051 crore. Of this, upstream companies ONGC, Oil India and GAIL India contributed Rs 15,000 by way of discounts, while the government agreed to give Rs 26,000 crore in cash subsidy. Oil marketing firms are likely to bear the rest.
Petroleum secretary S Sundareshan had told FE recently that a comfortable crude oil price would be a rang of $60-70 a barrel. Beyond $75 is unmanageable, he had said. The petroleum ministry says that the government has to take hard decisions in terms of fuel price rise or we have to change the target that we have set for ourselves for fiscal deficit if additional money is to be provided from the budget.
World oil prices tumbled on Tuesday to their lowest levels so far this year on concerns about future oil demand and the strong dollar, overseas reports said. New York?s main contract, light sweet crude for delivery in June, fell $ 1.88 to $ 69.73 per barrel, after earlier hitting 69.27? the lowest level since October 5, 2009, agencies reported.
