Bloating fuel subsidies bleed govt, poses big fiscal risk

The survey termed burgeoning petroleum subsidies as the "key fiscal risk" and pitched for a further hike in prices of diesel and cooking gas (LPG). The subsidy bill will overshoot the Rs 1.79 lakh-crore target in the current fiscal year due to high crude oil prices, it added. HT reports.

The survey termed burgeoning petroleum subsidies as the "key fiscal risk" and pitched for a further hike in prices of diesel and cooking gas (LPG). The subsidy bill will overshoot the Rs 1.79 lakh-crore target in the current fiscal year due to high crude oil prices, it added.

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"Addressing the key fiscal risk of petroleum subsidies is critical to better fiscal marksmanship," the survey said.

The government has pegged oil subsidy at Rs 43,580 crore, food subsidy at Rs 75,000 crore and fertiliser subsidy at Rs 60,974 crore, taking the total subsidy bill to Rs 179,554 crore in 2012-13.

"With recent reforms in diesel prices and efforts at expenditure reprioritisation, the medium-term fiscal consolidation plan is credible and could yet again yield macroeconomic dividends in terms of higher growth and price stability," the survey said.

To check the growing subsidy burden, the government recently raised diesel prices by Rs 5 per litre and capped the number of subsidised cylinders at six per household in a year in September, 2012.

The government last month allowed oil marketing companies to raise diesel prices in small measures periodically. However, in order to protect household budgets, it simultaneously raised the annual LPG cap from six to nine cylinders.

But with global crude oil prices averaging at $107.5 a barrel in the first three quarters of the current fiscal year, the government's payout to keep domestic retail price of auto, cooking fuels and fertilisers will see a substantial rise.

"While the Budget for 2011-12 had estimated total expenditure to be contained at 14% of GDP, there was an overshooting on account of the high global oil prices and the insufficient pass through to domestic oil and fertiliser prices," the survey said.

The high level of global crude oil prices also has a bearing on fertiliser subsidy as there is inadequate pass-through in urea prices (a major domestic fertiliser), the survey said.