India to save  Rs 35,758  crore on key fuel subsidies

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India is expected to save ₹35,758 crore on kerosene and cooking gas subsidies this year, which is over 91% of the total budgeted fuel subsidy for 2020-21, mainly because of low international oil prices, according to two officials who asked not to be named.

As per prevailing international prices, the expected subsidy on kerosene sold through the public distribution system in the current financial year is zero. The subsidy through direct benefit transfer (DBT) of cooking gas, or liquefied petroleum gas (LPG), is expected to be Rs 3,506 crore in 2020-21, substantially lower than the budgeted amount of Rs 35,605 crore, these officials added.

The Union Budget for 2020-21 provides for Rs 39,264 crore subsidies for the two fuels (Rs 35,605 crore on LPG subsidy and Rs 3,659 crore on kerosene) compared to Rs 34,110 crore in the previous fiscal year, one of the officials said. 

According to the petroleum ministry’s data, average cost of India’s crude oil import (Indian basket) in April 2020 plunged sharply by about 72% at $19.9 per barrel compared to $71 a barrel in the same month last year. (See chart).

Although global oil prices rose after oil producers’ cartel resorted to an output cut, India’s import cost still remains under $45 a barrel, the officials said. According to petroleum ministry’s datakeeper, the Petroleum Planning and Analysis Cell (PPAC), India’s average cost of crude import in July was $43.35 per barrel, which is about 32% lower than the rate prevailing a year ago.

“A portion of this savings could be adjusted against the pending bills of OMCs [oil marketing companies,” the first official, working in the petroleum ministry, said without elaborating on the pending bills. Cooking gas subsidy is directly credited in advance to more than 80 million beneficiaries’ bank accounts by state-run OMCs and the government reimburse the money next month.

The second official said a portion of this money will be used to fund supplies of free cooking gas cylinders for three months to nearly 80 million Covid-19 affected poor households as part of the government’s Rs 20 lakh crore ‘Atmanirbhar Bharat Abhiyan’ (Self-reliant India initiative) package.

The Rs 20 lakh crore economic stimulus-cum-relief package, announced between March 26 and May 17, included distribution of three free cooking gas cylinders to the poor till June. Those households that could not utilise their quota of three free gas cylinders till June can avail the facility till September 30, the second official said. The official said while budgeted fuel subsidy has gone down by over Rs 35,000 crore, the government factored in an expenditure of about Rs 12,800 crore on three free gas cylinders to 80 million households for three months.

Divakar Vijayasarathy, founder and managing partner of consultancy firm DVS Advisors LLP said, “Thanks to global economic slowdown and Covid-19, the market prices of oil has flattened out and is bearish thereby leading to lower market prices of LPG.” Benchmark Brent crude slipped 1.53% to close at $44.4 a barrel on Friday (August 7).

Vijayasarathy said international oil prices are expected to remain subdued due to lower demand as storage tanks across the globe are full to the brim.

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