The oil slick, again PDF Print E-mail
Friday, 06 April 2012 00:00
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Is FM risking petrol shortages to drive home point?

That the Budget’s Achilles’ heel is oil subsidies is well-known, and both the finance minister and the Prime Minister are on record saying India needs to bite the bullet. But saying that and doing that are different things, and the stuff that make or break delicately-strung coalitions. So while few expected any major cuts in diesel subsidies—indeed, with the Samajwadi Party becoming a more important ally, the chances of this have receded even more than when the Trinamool was a more trusted ally—most expected a hike in petrol prices, the fuel that has supposedly been decontrolled since 2010. While the oil companies lose around R7.50 per litre of petrol per day or around R5,000 crore a year, the hike had been postponed on account of the UP elections, and then the Budget. Both events are now over, but the hikes still haven’t taken place.

What gives? No one really knows, but officials have told FE that the government wants to go in for a more comprehensive subsidy reduction instead of merely tinkering with what is, in any case, a decontrolled fuel. In any case, the really huge losses are on diesel where companies lose around R14 per litre, taking the total to R56,000 crore, over ten times the losses on petrol. Waiting for a more comprehensive solution will probably involve cutting both central and state levies as well, and both look tough when governments are cash-strapped. In which case, the government’s strategy seems a bit of a high-risk one—cash-strapped oil firms will have no option but to start cutting supplies, giving people a feel of what the subsidy regime is costing the companies. Whether that’s a wise idea is not clear, but what’s true is the government is left with little other choice given that estimates for under-recoveries this year are currently upwards of R2 lakh crore at prevailing oil prices.



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