Interim Budget 2019: Rs 25k-cr petroleum subsidies may be carried over

This comes even as it is under pressure to meet a challenging fiscal deficit target of no more than 3.3% of GDP for 2018-19

The government could carry over as much as Rs 25,000 crore in pending petroleum subsidy payments to the coming financial year (2019-20, beginning April 1), as much as the budgeted estimate for 2018-19, Business Standard has learnt.

This comes even as it is under pressure to meet a challenging fiscal deficit target of no more than 3.3 per cent of gross domestic product (GDP) for 2018-19.

For FY19, this subsidy was budgeted at Rs 24,933 crore — comprising Rs 20,377 crore for liquefied petroleum gas (LPG or cooking gas) and Rs 4,555 crore for kerosene. Sources indicate that in the revised Budget for the ongoing financial year, the subsidy amount for the sector is likely to be Rs 20,000-21,000 crore — of Rs 16,500 crore for LPG and Rs 4,200 crore for kerosene. 

The actual subsidy burden could be as high as Rs 46,000 crore, in a year when global crude oil prices reached a four-year high of around $86 a barrel (in October; it has since fallen) and averaged $73.69 a barrel in April-September.

“The rollover is because of the higher overall subsidy burden for the sector of Rs 46,000 crore for 2018-19, due to price volatility in the international market,” a senior official said.

This puts more pressure on the finances of the three state-owned oil marketing companies (OMCs) -- Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation. The state companies in the upstream (exploration and production) segment OMCs like Oil and Natural Gas Corporation and Oil India are unlikely to be burdened with a share of the subsidy. The upstream share was earlier via sale of crude oil and products to the OMCs at a discounted price, to partially compensate them for losses on subsidised fuel sale.

For financial year 2017-18, the subsidy on LPG was Rs 20,905 crore. This amount was Rs 14,013 crore during the first half of this financial year. Similarly, the kerosene subsidy was Rs 3,309 crore during the first half, compared to an overall Rs 4,785 crore for all of 2017-18. 

From the April to November period (first eight months of FY19) of the current year, LPG consumption saw cumulative growth of 4.9 per cent from last year, while cumulative kerosene consumption dropped 10 per cent. 

Due to the higher crude oil prices during the first half, its import bill for the current year is set to increase by around 55 per cent, from Rs 5.66 trillion in 2017-18 to Rs 8.8 trillion this year. Every $1 rise in this price hits India’s import bill by Rs 6,158 crore.

Successive governments have resorted to the time-tested methods of rolling over additional subsidy burden, taking back unspent amounts from ministries, converting certain expenditure entries to ways and means advances, and running down of cash reserves. Rolling over is necessitated now by the government’s stated commitment to meet the fiscal deficit target, without compromising on capital expenditure. Even that seems unlikely now, with serious doubts on meeting the budgeted targets on goods and services tax (GST) and on direct taxes.

The fiscal deficit target for 2018-19 is Rs 6.24 trillion. By November-end, it stood at Rs 7.17 trillion, breaching the Budget Estimates by almost 15 per cent. This means the government needed a fiscal surplus of Rs 93,000 crore in the next four months to meet the target.

Officials say there could be a combined shortfall of Rs 70,000 crore-1 trillion on GST collection, though the Centre’s own gap here will not exceed Rs 29,000-30,000 crore. Analysts say deep spending cuts would be needed, on both capital and revenue accounts. 

And, data available for April-October shows the pace of revenue expenditure for most social sector ministries and some infrastructure ones had indeed slowed when compared to the same period last year.