A couple of years into its tenure, the Narendra Modi government seems to be losing the grace of its lucky stars, reports Siddhartha Saikia in New Delhi.
A couple of years into its tenure, the Narendra Modi government seems to be losing the grace of its lucky stars, reports Siddhartha Saikia in New Delhi. Benign Brent crude has bountifully helped the government in fiscal management but last Thursday, when the government celebrated its second anniversary, the global benchmark went up 31 cents to go past the $50 per barrel mark, for the first time in 2016. Crossing this level is seen by many analysts as a signal that prices are rising. Brent crude, which touched $50.05 a barrel on Thursday morning, slid to $49.27 on Monday, but that was barely seen as a solace.
The budgeted petroleum subsidy of Rs 26,947 crore for 2016-7 will suffice to keep retail prices of subsidised LPG and kerosene at the current levels only if the average price of Indian basket of crude for the year is around $45 per barrel, analysts said.
(The price of the Indian basket of crude, according to the Petroleum Planning and Analysis Cell under the oil ministry, stood at $47.23 per barrel on Thursday, compared with $46.74 per barrel on the previous day.)
According to an estimate, if the Indian basket crude price is $50 a barrel (and assuming Rs 67 to a dollar), the annual subsidy required on domestic LPG would be Rs 17,000 crore at the current level of subsidised price and consumption; this would, however, more than double if crude touches $70. As for PDS kerosene, the subsidy figures corresponding to crude at $50 and $70 would be Rs 14,000 crore to Rs 19,000 crore, respectively. Put differently, every $1 per barrel rise in the price of the Indian basket of crude oil will inflate the oil marketing companies’ under-recovery on domestic LPG by Rs 7 a cylinder and PDS kerosene by 40 paise per litre.
During FY16, petroleum under-recovery stood at Rs 27,571 crore — Rs 16,056 crore on domestic LPG and Rs 11,496 crore on PDS kerosene. The finance ministry’s revised estimate of oil subsidy last year was higher at Rs 30,000 crore, as some arrears too were paid.
The silver lining is that unauthorised use of subsidised cooking gas has been substantially curbed. “While increase in crude oil price will put pressure on current account deficit and fiscal deficit, success of initiatives such as GiveItUp and direct benefit transfer of LPG would help government manage the subsidy outgo,” said Anish De, partner and head of oil and gas, KPMG in India.
The average Indian basket of crude price in FY16 was $42 a barrel, said K Ravichandran, senior VP and co-head, corporate sector ratings at Icra, adding, “Budgeted subsidy should be sufficient up to a crude price of $45 per barrel.”
Several hikes in excise duty on petrol and diesel effected last year would garner Rs 70,000 crore in the full year. In a recent interview to FE, revenue secretary Hasmukh Adhia said that the government could consider downward revision of excise duty on petrol and diesel if crude hardens.
This, he said, would help control the inflation.