Govt pegs lower subsidy for petroleum products.
The government today proposed a shift from bonds to cash for compensating the oil and fertiliser companies. The move will help in improving the cash flows of companies in both these sectors. However, the government allocated a lower subsidy of Rs 3,108 crore on petroleum products, primarily domestic LPG and kerosene, for 2010-11, compared to revised estimates of Rs 14,954 crore in 2009-10 over and above the grant of Rs 10,306 crore through bonds.
There is an additional outgo of Rs 12,000 crore this year on account of cash subsidy for state-owned oil marketing companies. The petroleum ministry had demanded Rs 31,000 crore for 2009-10 on account of under-recoveries incurred on sale of LPG and kerosene. The unmet demand now stands at Rs 19,000 crore. With oil subsidy limited to Rs 31,108 crore for 2010-11, it appears that the finance ministry expects a move on the recommendations of the Kirit Parikh committee.
“I have made a conscious effort to avoid issuing bonds to oil and fertiliser companies. I would like to continue with this practice of extending government subsidy in cash, thereby bringing all subsidy related liabilities into our fiscal accounting,” Finance Minister Pranab Mukherjee said today while presenting the 2010-11 Budget. Further, Mukherjee said a nutrient-based subsidy policy for the fertiliser sector has been approved by the government and will become effective from April 1, 2010.
This will lead to an increase in agricultural productivity and better returns for the farmers, and over time reduce the volatility in demand for fertiliser subsidy and contain the subsidy bill, he said.
Oil companies such as Indian Oil and Hindustan Petroleum prefer cash subsidy since they sell oil bonds below par. “Normally cash is a better proposition than bonds, since it is instant liquidity,” said an oil company official. Petroleum minister Murli Deora said the move “will mean that the financial assistance from the government will be timely, transparent and beneficial to the public sector oil marketing companies.”
The government’s subsidy on food (arising on sale of wheat and rice at concessional rates to consumers), fertiliser and petroleum for 2010-11 is estimated at Rs 108,666 crore compared to revised estimates of Rs 123,936 crore in 2009-10. The decline is mainly due to a reduction is petroleum subsidy allocation from Rs 14,954 crore to Rs 3,108 crore. The subsidy outgo on fertiliser is estimated to decline from Rs 52,980 crore in 2009-10 to Rs 49,980 crore in 2010-11, while the outgo on food is estimated to decline marginally from Rs 56,002 crore in 2009-10 to Rs 55,578 crore.
