Oil price slide set to bring down subsidy bill

  • Anupama Airy and Gaurav Choudhury, Hindustan Times, New Delhi
  • Updated: Jan 21, 2015 23:59 IST

The near-60% crash in global oil prices could not have come at a more opportune time for the government. This will aid its efforts to nursemaid the state balance sheet with a lower subsidy bill, and help it press ahead with complex energy pricing reforms.

Thanks to the recent crash in oil prices, India’s fuel subsidy bill for 2014-15 is likely to close at one-third of last year’s bill of Rs 1.4 lakh crore, sources told HT. With more than two months left for the current financial year, the fuel subsidy bill for 2014-15 is expected to be less than Rs 65,000 crore, they said.

Softer crude prices will also bolster the government’s plans to tame inflation and curtail fuel subsidies. A lower subsidy bill will help contain the country’s fiscal deficit — a measure of the amount the government borrows to fund its expenses — at the budgeted level of 4.1% of GDP in 2014-15.


Being the world’s fourth-largest oil consumer, India imports around 190 million tonnes of crude oil a year — costing $145 billion a year, or more than a third of its total import bill. With every dollar decrease in oil prices, the government’s oil import bill comes down by Rs 4,000 crore.

The fall in oil prices will also help India’s oil import bill to be less than $100 billion as against $147 billion in the last fiscal.

Market-determined fuel prices, besides helping cut subsidies, will also eventually help cut taxes on petroleum products and offset the shocks when global crude prices shoot up.

The International Monetary Fund (IMF) on Tuesday in a report said that lower oil prices also offer an opportunity to reform energy subsidies and taxes in oil importing nations such as India.

The government is expected to incorporate the suggestions of the Expenditure Finance Commission (EFP) headed by former Reserve Bank of India governor Bimal Jalan in the budget proposals for 2015-16.

The Commission is expected to submit its interim report before the budget of 2015-16 and its final report before the budget of 2016-17.

The subsidy bill on food, petroleum and fertilisers is estimated at Rs 2,51,397.25 crore for 2014-15, up 2.47% over the previous fiscal. It was Rs 2,45,451.50 crore in the revised estimates for 2013-14.

Finance minister Arun Jaitley is in favour of rationalising subsidies and boosting public spending to provide a fillip to the cash-starved infrastructure sector.

“From January 1, LPG subsidy is going through banks...We have to gradually rationalise all possible subsidies,” he had said while addressing a Confederation of Indian Industry function in Chennai on Monday.

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