The estimates are based on April figures and the benefit which is likely accrue due to government decisions over the past few month.
The phased decontrol of diesel prices and capping of subsidised liquefied petroleum gas (LPG or cooking gas) cylinders and firming up of rupee has helped in controlling subsidy. Besides, there has been a dramatic drop in international crude prices dropping to around $ 100 per barrel level, from around $118 in December.
As per the latest figures, the under recovery on diesel has come down to as low as Rs 4.28 per litre, while kerosene and LPG too has dropped to Rs 29.33 per litre and Rs 378.5 per cylinder simultaneously. “This drop of 48% is basically due to the drop in international prices. It has dropped drastically in the last three months.
Also Read
The cap of nine cylinders on subsidized LPG and diesel decontrol also contributed to this. However, it needs at least three months to come out with a more realistic forecast for the financial year,” said K V Rao, director finance, Hindustan Petroleum Corporation (HPCL).
Diesel price was last increased by 45 paise a litre on March 22. But OMCs decided to skip the monthly hike this month. With Karnataka state elections due next month and Parliament in session, the government informally asked the companies to take a pause.
OMCs, however, diesel price being at par with market rates within 15 months. The government had gone for a phase-wise decontrol of 50 paise per month on diesel on January 17 this year, in order to eliminate the under recovery on the product which even touched Rs 10.72 per litre in February.
“The oil marketing companies were expecting diesel prices to move towards market prices by early 2015. Now, with a monthly increase of 50 paise and global price easing, OMCs would be able to touch market level on diesel prices within nine months or at most by 15 months (mid of 2014). As far as overall under recovery of OMCs are concerned, the firming up of rupee has also been a major factor,” said an industry analyst.
However, experts believe that the relief in under recovery would happen only if the international prices remain almost at the same level. Due to diesel decontrol, the revenue loss is expected to be down by Rs 15,000 crore, while capping of subsidised LPG cylinders may cut the subsidy by Rs 7,950 crore on an annualised basis. The under recovery is normally shared between the government and upstream companies.
The overall under recovery during the financial year 2011-12 was Rs 1,38,541 crore, out of which diesel had the majority share of Rs 81,192 crore, domestic LPG at Rs 27,352 crore and Rs 29,997 crore for kerosene. As India imports 83% of its crude oil requirements, international prices play a decisive role in domestic pricing.
The three public sector oil marketing companies like Indian Oil Corporation (IOC), Bharat Petroleum Corp Ltd (BPCL) and HPCL pay trade parity price to refineries when they buy petrol and diesel and import parity price for domestic LPG. Though petrol prices were decontrolled in June 2010, it still has a minor under recovery attached to it.