Govt mulls rolling over oil subsidy payment of FY19 to 1st quarter of FY20

With the oil subsidy shooting up this fiscal year (2018-19 or FY19), the government is planning to roll over payment of a major chunk of it to the first quarter of the next year (2019-20 or FY20).

By the end of September, the petroleum ministry’s internal calculations showed that the oil subsidy for the year was estimated to cross Rs 460 billion. Initially it was expected to be Rs 250 billion. Now, the government plans to pay about Rs 200 billion in FY20.

The Centre is trying to meet a difficult fiscal deficit target this financial year.

The government usually compensates the companies for subsidy on liquefied petroleum gas (LPG) and kerosene. If the subsidy is rolled over for at least six months, it may bring an additional interest burden of Rs 8-9 billion on oil marketing companies (OMCs) such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL).

Industry officials claimed this might well be a double whammy for the OMCs, which have taken a hit of Rs 45 billion for FY19 by absorbing Rs 1 both on prices of petrol and diesel. This was after the international crude oil prices touched $80 a barrel last month, pushing up domestic retail prices.  “State-run OMCs have done enough by absorbing the additional burden. Hence, a roll-over of such a massive scale will affect their finances,” said a government official.

Other government sources said a roll-over of subsidies had to happen, as there was pressure on the fiscal deficit because of higher-than-expected spending on a number of items and anticipated shortfall in sources of revenue such as the goods and services tax (GST).

For the April to September period of FY19, subsidy figures were Rs 172.3 billion, of which Rs 139.21 billion was for LPG and Rs 33.09 billion for kerosene. In FY18, LPG subsidy was Rs 208.8 billion and kerosene subsidy of Rs 46.72 billion. The under-recovery on per litre of kerosene is currently to the tune of Rs 21.23, while that of LPG is Rs 435.08 per cylinder.

On Friday, the Indian basket of crude oil price was at $71.11 a barrel, while the international benchmark Brent crude price was $70.48 a barrel, giving some relief to the government.

The Centre — primarily Finance Minister Arun Jaitley — has so far maintained that the fiscal deficit target for the year will be met, without compromising on capital expenditure.

However, as the exercise for the interim Budget FY20 begins, policymakers in the finance ministry are considering a number of steps to ensure there is no fiscal breach. Rolling over subsidy payments is a time-tested method. And, it is highly likely that a substantial portion of fertiliser and food subsidies could also be rolled over.

As reported earlier, the Centre could face a shortfall of more than Rs 1 trillion in its share of GST, and could see additional expenditures of more than Rs 450 billion.

Apart from the higher oil subsidy burden, the central government’s internal spending estimates show that it expects an additional outlay of Rs 200 billion only for the newly announced minimum support price obligations for cereals and pulses. This will be over and above the budgeted food subsidy estimate of Rs 1.69 trillion.

The government has also announced that it will provide an extra support of Rs 20 billion for Air India, over and above Rs 163 billion announced in the Budget. The outlay for Ayushman Bharat could also increase by Rs 35 billion.

When it comes to fuel subsidy payments, the full amounts are not released till the audited data comes in from the oil ministry. So a lot of the payments go out in April and May of the next fiscal year, officials said.