Pending petroleum subsidy held back to make room for PM-Kisan scheme

The Rs 20,000 crore that the Narendra Modi government has allocated for its newest flagship scheme, PM Kisan, for 2018-19 came at the cost of petroleum subsidy dues of the state-owned oil-marketing companies, Business Standard has learnt.

The budgeted petroleum subsidy estimate for the current fiscal year was Rs 24,933 crore. Sources in multiple ministries said the Centre was seriously considering paying out an extra Rs 20,000 crore to clear all the outstanding subsidy dues of the OMCs and start 2019-20 on a clean slate, without any subsidy carryovers.

"The government was planning to allocate an additional Rs 20,000 crore for oil subsidy in the third supplementary demand for grants for 2018-19. We had that space in terms of our fiscal situation. However, when the plans for PM Kisan were being firmed up, it was decided to use that amount for the scheme instead,” said a senior official.

Had the amount been allocated for pending payments to the OMCs, the revised petroleum subsidy estimates would have jumped up to Rs 45,000 crore. As such, the revised oil subsidy estimate for FY2019 is Rs 24,833 crore, almost the same as the budgeted estimate. The actual subsidy payout this year may even be lower than this by around Rs 5,000 crore, officials say.

The rollover of subsidies will add additional pressure to the finances of OMCs like Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL).

Because of the spike in global crude oil prices, the Centre will face a huge petroleum subsidy burden for the current financial year, officials concede, which will be rolled over, and in fact some of that rollover has already been accounted for in the next year’s subsidy budgeted estimate. 

The petroleum subsidy budgeted estimate of Rs 37,478 crore for 2019-20 already assumes a rollover of around Rs 13,000 crore.

“The idea was to start 2019-20 without any carryovers on the fuel subsidy front. The fact is now that even the budgeted subsidy allocation for next fiscal is lesser than what is actually required,” said a second official.

According to official estimates for the month of February, expected petroleum subsidy figures for the financial year 2018-19 was seen at Rs 37,002 crore, including Rs 31,169 crore for liquefied petroleum gas and Rs 5,853 crore for kerosene. Interestingly, sources hint that allotment for the petroleum subsidy is likely to be even lesser than what was mentioned in the revised estimate by interim finance minister Piyush Goyal. The year could end with only about Rs 16,400 crore and Rs 4,000 crore being allocated for LPG and kerosene, respectively.

The subsidy figures are expected to further increase by the end of March as the difference between the non-subsidised and subsidised cylinder spiked to Rs 205.89 a cylinder, up 24.4 per cent from Rs 165.47 a cylinder in the month of February. On the other hand, kerosene subsidy that was seen at Rs 7.08 a litre is also expected to increase in March.   

Adding to the worries is another bout of spike in crude oil prices. Brent crude hit a four-month high of $68.14 a barrel on Thursday. On Friday, it was seen at $67.40 at one point, causing worry among consumers like India about the impact on their respective economies if prices cross $70 a barrel.

The PM Kisan scheme, announced by Piyush Goyal in the 2019-20 interim budget, promises a support of Rs 6,000 annually to small and marginal farmers. The Centre has transferred the first installment of Rs 2,000 each to 21.8 million farmers in 23 states and one Union Territory. For next year, the allocation for the scheme has been budgeted at Rs 75,000 crore.

Subsidy burden
  • Govt was planning to allocate an extra Rs 20,000 cr in FY19 for oil subsidy
  • Extra allocation would have taken oil subsidy layout to Rs 45,000 cr this fiscal year
  • Govt wanted to start 2019-20 without oil subsidy rollovers
  • Officials said once PM Kisan took shape, the funds were allocated to it instead

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