Crude shock: Indian rupee slide will push fuel subsidy bill up

The steep fall in the value of the rupee,together with a slight firming up of crude oil prices,could inflate the fuel subsidy bill to levels higher than the R80,000-crore figure projected by the finance ministry for 2013-14.

Written by Pranav Nambiar | New Delhi | Published: June 11, 2013 12:38 am

The steep fall in the value of the Indian rupee,together with a slight firming up of crude oil prices,could inflate the fuel subsidy bill to levels higher than the R80,000-crore figure projected by the finance ministry for 2013-14.

The combined impact of the two oil marketing companies estimate could push up the subsidy bill by 10% more than government estimates,to R88,000 crore. “With the rupee over the last week plunging to a new low of R57.32 to the dollar,a much fatter subsidy bill could be on the cards unless we see an early recovery in the currency and continued stability in the crude prices,” industry insiders said. An OMC executive said that further upward price revisions of petrol and diesel are on the cards with crude oil prices showing signs of firming up. OMCs increased retail prices of petrol by R0.75/litre and diesel by R0.50/litre with effect from June 1.

Oil ministry estimates reckon that for every one rupee fall against he dollar,the fuel subsidy bill would rise by R9,000 crore.

The fuel subsidy figure for 2011-12 stood at R1,38,541 crore in FY12 and R1,61,029 crore in FY13. Of the losses in FY13,R92,061 crore was on account of diesel,R39,558 crore on account of LPG and the balance of R29,410 crore on account of kerosene.

Although crude oil prices remained stable at $101 per barrel in the month to June 7,the price of the Indian oil basket jumped around 4% to R5,771.03 a barrel. Despite this,the diesel under-recovery applicable for the first fortnight of June increased to R4.87 a litre from R3.73 a litre. The under recovery numbers for kerosene stand at R27.75/litre and for LPG at R334.5/cylinder.

An official from Indian Oil Corporation said though its not possible to draw a direct correlation between rupee movements and controlled fuels like LPG and kerosene,in the case of petrol a one dollar fall in rupee could result in a 60-70 paise rise in petrol prices.

He added that the financial situation for OMCs could deteriorate with the possible rise in under recoveries. “There could be an impact on the working capital requirements of OMCs as we will have to purchase much more expensive fuel. Also we might have to resort to further borrowings,” he said.

The three major OMCs — IOC,HPCL and BPCL — had borrowings to the tune of about R1.5 lakh crore in 2012-13.

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