The Hindu Business Line : 45 pc hike in kerosene, LPG subsidy

THE Budget has proposed a 45 per cent raise in the subsidy on kerosene and LPG to Rs 6,300 crore this fiscal over the previous year's figure. In reality, the subsidy is only Rs 4,100 crore, having dropped by a whopping 40 per cent over the previous year's.

The subsidy arithmetic gets worse if we consider that the Government mops up hefty revenues from these two products through levy of excise duty. If we net off the revenues from kerosene and LPG, the subsidy has more than halved over the previous year's figures.

All this, while the Government does not allow the public sector oil marketing companies to raise the prices of LPG and kerosene for political consideration. The result is that the net losses on sale of these two products for the oil PSUs is likely to be in the region of Rs 3,000-Rs 4,000 crore for this fiscal. The financial performance of oil PSUs has been impressive this fiscal since crude prices have ruled high and yielded higher refinery margins. Also, the companies have made hay on account of inventory gains in a rising market.

For the moment, if we stick to the announcement in the Budget documents, the subsidy allocated for kerosene and LPG last fiscal was Rs 4,450 crore. But late last year, the Finance Ministry approved a subsidy scheme of Rs 2.45 per litre on kerosene and Rs 67.75 per cylinder.

This amounted to a subsidy of Rs 6,700 crore, Rs 2,200 crore over the budgeted amount of Rs 4,500 crore. Later, they asked the public sector undertakings in the oil sector to pay up this amount through interim dividends!

A sum of Rs 2,500 crore was paid recently by the oil PSUs. However, in recent meetings with the Petroleum Ministry, the Finance Ministry told the former that the amount would be adjusted in next year's Budget. And so, we see higher subsidy allocation in the Budget documents for fiscal 2003. Netting off the Rs 2,200-crore for fiscal 2002, the net subsidy is Rs 4,100 crore.

If we consider the excise duty mopped up by the Government on these two products, the net subsidy is even lower. During fiscal 2002, kerosene contributed around Rs 1,540 crore and LPG Rs 1,700 crore, together contributing Rs 3,240 crore. Hence, the net subsidy is only around Rs 1,260 crore. During fiscal 2003, if we consider that prices are not raised, on the strength of growth in product consumption alone, the net subsidy is only Rs 585 crore. If prices are raised, since excise duty is on an ad valorem basis, the net subsidy would drop further.

The Government would be setting a cat among the pigeons with the privatisation of Hindustan Petroleum Corporation Ltd later this year, since it cannot stop a private oil company from raising prices to meet costs. In such a case, there might be nil subsidy on the two products this year itself.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Time to invest in equity, debt

Riding the break

Jaswant smiles on the salaried

Impetus and impediments

Dividend, tax gains for MF investors

CST cut to hurt States by Rs 5,000 cr

Style & substance true to form

Will Mauritius lose its sheen?

A curate's egg

That Black Label may cost you less!

Women give the thumbs-up