India reaps cheap oil benefit

New Delhi: With global crude oil prices dropping to multi-year lows, India’s oil subsidy bill is likely to be slashed by over 60 per cent in the current fiscal.The government currently controls diesel, domestic LPG and kerosene and prices them at rates below cost. The losses that oil firms thus incur are made good by way of cash subsidy and asking upstr-eam oil producers like ONGC to give discounts.

 

In 2013-14, the Centre gave Rs70,772 crore by way of cash subsidy while upstream firms pick-ed up Rs 67,021 crore tab. With oil prices dropping to a four-year low of less than $84 per barrel, the under-recovery or revenue loss arising out of selling diesel, domestic cooking gas (LPG) and kerosene at prices lower than imported cost this fiscal is estimated at Rs 86,080 crore.

 

This is lower than 

Rs1,39,869 crore gross under-recovery last fiscal, industry and government sources said. Sources said the under-recovery in the first quarter (April-June) was Rs 28,691 crore. This was mostly met by Rs11,000 crore cash subsidy from the government and Rs 15,547 crore coming from ONGC, Oil India Ltd and GAIL. The remaining Rs2,144 crore was absorbed by fuel retailers (IOC, BPCL and HPCL).

 

In second quarter, the under-recovery is estimated at Rs21,198 crore with diesel accounting for Rs 2,848 crore as compared to Rs 9,037 crore in the June quarter. Kerosene under-recovery was Rs6,950 crore (Rs7,524 crore in Q1) and LPG was Rs11,400 crore (Rs12,129 crore in Q1). With diesel under-recovery being wiped out in September and fuel retailers are making a profit of over Rs 2 a litre, the share of nation’s most consumed fuel in overall under-recovery for 2014-15 fiscal will be just Rs12,189 crore.

 

Sources said the government has not accounted the cash subsidy and upstream share for the second quarter. While the government had deregulated or freed petrol prices in June 2010, diesel prices have been raised by up to 50 paisa a litre every month since January 2013. The hikes together with a sharp drop in international oil prices have helped wipe out the under-recovery or loss on diesel.

 

Oil firms lose Rs 31.22 a litre on kerosene and Rs 404.64 per 14.2-kg LPG cylinder. Sources said the government had provided Rs1 lakh crore cash subsi-dy in 2012-13 when unde-rrecoveries touched an all-time high of Rs1,61,029 crore. In the preceding year, it had provided Rs83,500 crore.