As Brent Crude oil prices fell to $49 per barrel before recovering to end at $51.10 per barrel on Wednesday, the general perception is that retail petrol prices in India may fall drastically as the Government’s subsidy payout to oil marketing companies (OMCs) has come down considerably. However, things may not go according to the script owing to global recessionary concerns and the fact that subsidy payment, though now at lower levels, still remains a strain on the exchequer.
According to highly-placed sources, the benefits of falling crude cannot be passed on to the consumer in totality as a cautious Government, foreseeing a possible global economic slowdown owing to falling crude prices, has hiked excise duty on petrol and diesel thrice in the last two months. Also, the fact is that the subsidy burden still remains, so a sharp cut in petrol prices may not be forthcoming in the days to come.
According to data available with The Pioneer, the subsidy payout by the Government to OMCs in the financial year (FY) 14 was Rs77,866 crore, while in the first half of the current fiscal, it comes to around Rs17,400 crore provisionally. Also in FY14, the total fuel subsidy burden on the Government was Rs1,15,000 crore while in the current financial year it is likely to be in the range of Rs80,000 crore, owing mainly to falling crude prices.
However, sources pointed out that the subsidy burden, though considerably reduced, still remains a concern for the Government, and, moreover, compared to the rate at which the global crude prices have been falling in the last three months, the total benefits have not been passed on to the consumers in the form of reduction in retail prices of petrol and diesel. Retail petrol prices have been cut by Rs 10 a litre in the past few months, though compared to the free-falling global crude prices, the quantum of cut in retail prices is low.
Though, both the commodities are deregulated, the Government still continues to play a significant role in fixing them. Sources in the know pointed out that hiking excise duty on sale of both petrol and diesel on three occasions in the last couple of months was a way to ensure that once crude prices start rising, OMCs don’t face immediate losses on their sale.
Official sources further said that the money collected through excise duty hikes is being put into the infrastructure fund of the Centre, which is meant to finance big ticket infra projects. Industry experts pointed out that the Government is infusing liquidity into such funds due to rising concerns of a possible slowdown in the global economy owing to falling crude prices.
“There are fears of a possible economic slowdown taking place globally and, therefore , the Government by hiking excise duty on petrol and diesel and putting the revenue thus generated into a fund meant for financing infrastructure projects, is ensuring a cushion towards possible losses expected in such a scenario,” said Debashish Mishra, Senior Director with Deloitte Touche Tohmatsu.
While official sources confirmed that the Government will take stock of the global crude price situation on January 15, major cuts may not happen in retail prices of petrol.