Govt may roll over Rs 62,000 cr in fuel, fertiliser subsidies to FY21

In a bid to meet the challenging fiscal deficit target of 3.4 per cent of gross domestic product (GDP) for 2019-20, the Narendra Modi government could leave as much as Rs 62,000 crore in fuel and fertiliser subsidy arrears unpaid and roll over that amount to FY21, officials involved in the making of the Budget said.

The measure has been necessitated because the Centre anticipates a shortfall in tax revenues this year, and expenditure commitments will certainly go up as the ruling Bharatiya Janata Party seeks to fulfil some of the welfare promises made in its 2019 election manifesto.

The subsidy demand requirement of the fertiliser companies, both state-owned and private, is Rs 1.12 trillion, the officials said. This includes an estimated Rs 80,000 crore demand for the current fiscal year and Rs 32,000 crore in pending payments from last year. According to the interim Budget 2019-20, the budgeted estimate for fertiliser subsidy is Rs 74,986 crore.

The subsidy payment requirement of the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum, and Hindustan Petroleum — is around Rs 63,100 crore. This includes an estimated Rs 36,000 crore for the current fiscal year and pending dues of Rs 27,100 crore. The interim Budget has provided Rs 37,478 crore for petroleum subsidies.

The subsidy figures are unlikely to be changed for the lack of additional spending room, the officials said. This means the unpaid amount to be rolled over for fertiliser will be Rs 37,014 crore, while that of petroleum will be Rs 25,622 crore.

“We will likely roll over a lot of pending subsidy payments to next year,” said an official.

“There have been discussions on whether a bulk of the pending payments can be cleared this year. But given the fiscal situation, that option isn’t there anymore,” said an official.

Officials say food subsidy isn’t a problem as, by their own admission, the government resorts to off-budget by the Food Corporation of India and dips into the National Small Savings Fund to fund food subsidy bills. The estimated food subsidy budget for 2019-20 is Rs 1.84 trillion.

When Finance Minister Nirmala Sitharaman presents her first Union Budget in the Lok Sabha on July 5, she is highly likely to forecast a fiscal deficit target for 2019-20 at 3.4 per cent of GDP. This target will be retained from the interim Budget, which was presented on February 1.

A major reason for the rising burden in the fertiliser sector is due to the non-revision of urea prices in almost eight years now. On the other hand, non-payment of dues by the government has increased the debt of IOC, BPCL and HPCL. A similar situation last year had increased the debt of the OMCs to a five-year high of Rs 1.62 trillion by the end of March 2019.

Based on the industry data, Indian Oil’s total debt was seen at Rs 92,712 crore, followed by Rs 42,915 crore of BPCL and Rs 26,036 crore of HPCL. This increase in debt was mainly attributed to the government's delay in payment of subsidy on liquefied petroleum gas and kerosene, of around Rs 33,900 crore combined, apart from a rise in their capex requirements.

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