Cooking fuel subsidy set to see 66% jump on rising crude oil prices

Rising crude oil prices have upset the government’s estimate for cooking fuel subsidy for this financial year.

Government support for liquefied petroleum gas (LPG) and kerosene, constituting the petroleum subsidy, is set to increase by 66 per cent over the budgetary estimate for 2018-19. 

Based on the current prices of LPG and kerosene, the subsidy on these products may touch Rs 414.78 billion, against the targeted Rs 249.32 billion. According to the latest estimates by the government, the LPG subsidy is set to increase 73 per cent to Rs 352.57 billion, against the budgeted Rs 203.77 billion for 2018-19. The subsidy for kerosene will increase 36 per cent, from Rs 45.55 billion to Rs 62.21 billion, during the financial year. 

On kerosene, the subsidy comes to Rs 16.16 per litre. On LPG, it amounts to Rs 320.49 per cylinder, based on the data with the Petroleum Planning & Analysis Cell. This comes at a time when fuel prices are rising. 

On Sunday, petrol prices increased to Rs 81.91 a litre in Delhi and Rs 89.29 a litre in Mumbai. Diesel prices went up to Rs 73.72 a litre in Delhi and Rs 78.26 a litre in Mumbai.

According to a senior government official, the finance ministry is in no mood to cut the excise duty on petrol and diesel and it will not go back to the controlled-pricing mechanism. The Union government levies a fixed excise duty of Rs 19.48 a litre on petrol and Rs 15.33 per litre on diesel. 

At the same time, there is no clarity on whether state-run Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) will bear a share of the rising subsidy burden. Neither of the companies has contributed to subsidies since June 2015. 

“We haven’t got any communication from the government regarding the sharing of the subsidy burden,” said Shashi Shankar, chairman and managing director of ONGC. 

During 2017-18, the subsidy for LPG was Rs 208.8 billion and that for kerosene was Rs 46.72 billion. During the first three months in the current financial year, these figures touched Rs 50.26 billion and Rs 16.60 billion. 

“With sanctions on Iran coming into effect on November 4 and Venezuelan crude oil production also declining, product prices are likely to increase,” said a government official. The Indian basket of crude oil was seen at $77.43 a barrel on Saturday. 

The rising prices may have a huge impact on the crude oil import bill, which was pegged earlier at $105 billion.