ADVERTISEMENTREMOVE AD

Union Budget 2018: Petroleum Subsidy Allocation May Fall Short

Government’s petroleum subsidy allocation for the next year may fall short as crude oil prices are expected to rise

Published
India
2 min read
story-hero-img
i
Aa
Aa
Small
Aa
Medium
Aa
Large
Hindi Female

The government’s almost unchanged petroleum subsidy allocation for the next financial year may fall short as crude oil prices are expected to rise.

Brent Crude, the Asian benchmark for oil prices, is now hovering around $70 a barrel, having risen more than 30 percent in six months. Through 2018-19, average crude price is expected to be 16 percent higher compared with this year, according to data compiled by BloombergQuint.

ADVERTISEMENTREMOVE AD

As a result, an average of 11 brokerage reports on the Budget expected the petroleum subsidy to be around to Rs 33,500 crore, Rs 8,500 crore more than the actual outlay. The government set aside Rs 24,933 crore – Rs 20,377.8 crore for liquefied petroleum gas and Rs 4,555 crore for kerosene – for the next financial year compared with Rs 24,460 crore in 2017-18. Petroleum and diesel prices are now linked to market rates.

0

What The Government Can Do

Revise Estimates

It can increase the budgeted estimates for subsidy if there is a shortfall, as pointed out by brokerages.

“Oil subsidy – unchanged between FY18 and FY19 – could be at risk of slippage if oil stays high,” according to a Citi Research report. Motilal Oswal said the subsidy amount estimates Brent crude prices at $51 a barrel. “If prices sustain at current levels, there could be a shortfall.”

Sharing The Burden

Government’s petroleum subsidy allocation for the next year may fall short as crude oil prices are expected to rise

As the budgeted estimates are expected to fall short, explorers like Oil and Natural Gas Corporation Ltd and Oil India Ltd could be called upon to fill the gap. That will not be new as upstream companies used to share the subsidy burden with the government, till the quarter ended September 2015.

A shortfall in subsidy increases the earning risk for upstream companies if they were to share the burden, Morgan Stanley said. Their net realisations could be capped given the rise in oil prices, it said.
ADVERTISEMENTREMOVE AD

Possible Price Hikes

Government’s petroleum subsidy allocation for the next year may fall short as crude oil prices are expected to rise

The government has been increasing the prices of only subsidised fuels to reduce the subsidy burden. LPG and kerosene are now 12.5 percent and 25 percent, costlier, respectively, compared with April 2017. A lower-than-expected subsidy allocation for 2018-19 suggests price hikes.

Price action across the fuels broadly supports the subsidy assumption for 2018-19, JPMorgan said. The brokerage doesn’t expect oil explorers to share the subsidy burden.

(The article was published in an arrangement with BloombergQuint.)

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

Read Latest News and Breaking News at The Quint, browse for more from news and india

Topics:  Petrol prices   Petrol Pump   Petrol 

Speaking truth to power requires allies like you.
Become a Member
3 months
12 months
12 months
Check Member Benefits
Read More
×
×