04 Jan 2012;business-standard.com:Ajay Modi & Vrishti Beniwal:New Delhi: It’s a classic case of the tail wagging the dog. Perhaps, for the first time, the Union government’s outgo on account of oil subsidies will be higher than what the exchequer makes by way of various duties on petroleum products. Whilst the government’s gross oil subsidy burden, essentially compensation to state-owned oil marketers like Indian Oil and Hindustan Petroleum for selling diesel, kerosene and domestic cooking gas below cost prices, is set to top Rs 1,37,000 crore this fiscal, its revenue from various petroleum-related duties, taxes, dividends from oil companies, et al, is estimated at just Rs 86,000 crore. Under the current mechanism, government-owned oil producers in ONGC and Oil India pitch in with a third of subsidies, but even then the government’s share, at Rs 91,790 crore, will pip its revenues from the sector this fiscal. The cut in customs duty on crude oil, petrol and diesel, and excise reduction for diesel last June, coupled with lower corporate tax and dividends from oil companies, is estimated to shave government revenue from the sector by Rs 50,000 crore for 2011-12. Rising global crude prices and their adverse impact on oil marketers forced the government to provide these sops. In 2010-11, oil revenues topped Rs 1,36,000 crore compared to the gross subsidy burden of Rs 78,190 crore. Though Prime Minister Manmohan Singh recently flagged off the need to cut back on all subsidies except food, a price revision of even non-controlled products like petrol looks unlikely given that as many as five politically important states are going to elections in the next month or so. Interestingly, states make up an additional Rs 89,000 crore from taxes and royalties on petroleum products. Currently, government-owned oil companies are incurring a loss of Rs 388 crore per day on the sale of three subsidised products in diesel, kerosene, and cooking gas. Collectively, IOC, HPCL and BPCL have booked losses of over Rs 23,250 crore between April and September 2011. Government refusal to let them take petrol prices up this fortnight is making them bleed, almost Rs 2 per litre, even for a fuel that is theoretically not controlled. The per litre loss on diesel and kerosene is Rs 11.30 and Rs 28.50, respectively, while it is Rs 326 per cylinder on domestic cooking gas. What makes matters worse for these companies is that crude prices have hardened compared to last year and rupee depreciation has only added to the costs. The country meets over 80 per cent of its crude oil requirements from imports.
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