Iran Fallout: FY19 subsidy bill could go up by 1/3

By: | Updated: May 10, 2018 6:05 AM

Additionally, if the rupee remains depreciated against US dollar at the current level, the annual financial impact on domestic LPG and kerosene would be Rs 1,130 crore, for every Rs 1 fall in the value of the rupee.

US, India, oil import, Iran, global crude priceWith global crude prices expected to stay at higher levels than anticipated by policymakers, India’s fuel subsidy bill in FY19 may be 30% higher than the Budget estimate. (Reuters)

With global crude prices expected to stay at higher levels than anticipated by policymakers, India’s fuel subsidy bill in FY19 may be 30% higher than the Budget estimate. The bill has been declining over four years to FY18 thanks to a softening of crude, decontrol of auto fuels and savings on domestic LPG subsidy under direct benefit transfer (DBT) scheme. The FY19 fuel subsidy (on LPG and kerosene) might exceed the Budget estimate of Rs 24,933 crore by about Rs 7,583 crore if the Indian basket of crude remains at the current level of close to $72 a barrel for the rest of the year, officials reckon.  Additionally, if the rupee remains depreciated against US dollar at the current level, the annual financial impact on domestic LPG and kerosene would be Rs 1,130 crore, for every Rs 1 fall in the value of the rupee.

The rupee has averaged 66 against the dollar so far in FY19 and it was quoted at 67.30 on Wednesday, compared with the FY18 average of 64.45. A part or all of this additional burden might have to be borne by the Centre as the cost increases might not be fully passed on by the oil marketing companies. Since FY16, the Centre has been bearing the entire subsidy burden on the two fuels. Despite DBT that allowed savings to the tune of Rs 38,880 crore between FY15 and January this year, the LPG component of the subsidy has been growing due to expansion of household consumer base (the Ujjwala scheme of partially-free LPG connections to rural women itself added 3.85 crore extra LPG connections). However, kerosene consumption is on the decline — the use of this fuel has come down from 89.96 kilolitres (kl) in FY17 to 46.69 kl in FY18.

On Wednesday, the price of the Indian basket of crude reached $71.60 per barrel compared with the average of $56.39 in FY18. Indian policymakers view crude prices at $55-60 as a comfortable level for India. The Indian basket had touched a low of $28 in January 2016, after oil prices started crashing from mid-2014. Brent crude prices rose more than 3% on Wednesday, hitting three-and-a-half-year high of $77.20 a barrel after US President Donald Trump cancelled a nuclear deal with Iran and was poised to reimpose sanctions on the Persian Gulf nation. The high global prices are also supported by strong demand and OPEC-led production cuts.

By: Prasanta Sahu & Saurabh Kumar

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