Higher global oil price and a weaker rupee could affect the Centre’s fiscal maths as it will likely bear the entire subsidy on LPG in FY16.
Higher global oil price (Brent has risen 16.4% since January) and a weaker rupee (it slid 2.56% against the dollar in the past three months) could affect the Centre’s fiscal maths, especially as it will likely bear the entire subsidy on LPG in FY16, reports fe Bureau in New Delhi. Though some increase in crude oil prices from the February level (monthly average $56.40) was assumed for FY16 when the budget was made, a sharper price rise could upset the estimates (see chart).
For FY16, petroleum subsidy is budgeted at R30,000 crore, half last fiscal’s level, as the Centre hoped to benefit from the fall in crude oil prices, the absence of any subsidy on petrol and diesel and the weeding out of bogus (subsidised) LPG collections under the direct benefit transfer scheme.
Given that the subsidy burden on upstream oil companies rose sharply in recent years (to more than a half of the oil marketers’ under-recoveries in FY15) and they have now been promised a respite to step up capital expenditure, the Centre has few options.