INDIRECT TAXES
| Rising crude threatens to upset fiscal planning Thu, 24 Feb 2011 21:25:33 GMT |
| NEW DELHI: The spike in the global crude prices has deepened the government's dilemma. With crude hovering near $120 a barrel, pressure has increased on the government to raise retail prices of fuels. But it risks fanning inflation if it does so. And not passing on the increase in cost to consumers may mean a setback to its fiscal consolidation drive. When crude crossed $146 a barrel in 2008-09, the government and oil producers together provided over 1 lakh crore in support to oil marketing companies. The average crude price this fiscal is already close to the 2008-09 level. Going by the oil ministry's estimates, the subsidy bill for oil is set to cross 1 lakh crore this fiscal. While some people argue that the government should cut duties on oil to keep prices low, the step may translate into a loss of revenue. It may be no different from keeping duties as they are and using the revenues to give higher subsidy. "It doesn't matter whether you pay from left or right pocket," said D K Joshi, chief economist at CRISIL . There will be an impact on the government finances if prices are cut, duty rationalisation notwithstanding. "I think if subsidy is to be given, these are the two alternatives (duty cut or cash subsidy), but a call needs to be taken on how much subsidy should be provided to shield consumers against oil price rise," said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council. Rangarajan, however, added that the spike in oil prices may be a temporary blip and it may subside when the situation improves in West Asia. "But if prices remain high, some action will be required," he said. The finance ministry had earlier agreed to bear one-third of fuel subsidies. It has doled out Rs 21,000 crore already to oil marketing companies to sell automobile and cooking fuel below their imported cost. The government provides subsidy of about 10.74 per litre on diesel, 21.60 a litre on kerosene and 356.07 per cylinder on LPG. The government had not provided for any subsidy on petrol and diesel. It has provided a little over Rs 3,000 crore for cooking gas and kerosene sold through the public distribution system. The government has said it would not issue oil bonds to fuel marketing companies in lieu of subsidy, as it did in 2008-09 when it issued bonds worth over Rs 70,000 crore. This means the revised estimates for the current year will have to budget for a much higher outlay for petroleum subsidy. Rising crude prices will also mean a higher fertiliser subsidy. The fertiliser ministry has already demanded Rs 30,000 crore extra. |
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