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Economy

Budget 2012 Expects To Cut Petrol Subsidy 35%

Apparently, in this budget, we are going to cut the petroleum subsidy by a mind-boggling 35%. By nearly 25,000 crores (Rs. 250 billion *) From the budget document:

image

If you’re wondering where the “reduction” will come from, here’s the official explanation

Decrease is mainly due to higher petroleum subsidy paid to
OMCs in 2011-12.

Ah, really! That is so satisfying as an answer. We gave more this year! So we’ll give less next year!

We allocated Rs. 68,000 cr. (680 bn) for oil subsidy this year. Extrapolating from December’s figure of oil under recovery of Rs. 97,000 cr. and then that the companies were losing about Rs. 400 cr. per day, the oil pool deficit should be 130,000 cr. (1.3 trillion) by March.

At Rs. 400 cr. per day – assuming crude prices are constant and diesel prices aren’t increased locally – we will easily see another Rs. 130,000 cr. (1.3 trn) next year. If crude prices go up, the figure will be higher. We will have to provide for at least the same amount – or if we don’t want to kill the refiners’ credibility, even more.

I hope the budget makers haven’t been inhaling those petrol fumes.

(* I’m trying to convert crores to billions or millions for international readers. Kindly excuse.)

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