Diesel price hike likely to contribute Rs 30,000 cr in FY14

Food Security Bill is likely to be financed by a cut in other subsidies. The additional impact of the Food Security Bill is likely to be only Rs 5,000 crore in FY14. To fill in the gap for FY15, government may even consider urea deregulation.

According to CNBC-TV18's Aakansha Sethi, the additional petroleum subsidy is likely at Rs 30,000 crore in FY14. Diesel price hikes will contribute Rs 30,000 crore in FY14 and this diesel price hike is likely after the Parliament's session and the food and petroleum subsidy can be financed by cuts in expenditure.

Also Read: Oil ministry mulls one-time diesel price hike by Rs 5/litre

Last year in Q4, the government had undertaken significant cuts in their other expenditure which had hurt the gross domestic product (GDP) growth in the last quarter and had undertaken this in order to meet our fiscal deficit target, reports Sethi.

The cuts in plan expenditure may not be as large as last year, but there could be some cuts in expenditure. The Pan India rollout of the Food Security Bill will see an implementation only in the last four months of the fiscal and hence the additional cost on the food security will only be Rs 5,000 crore.

The more worrying area is the petroleum subsidy where the under-recoveries are likely to be at Rs 140,000 crore of which the government section will be around Rs 70,000 crore. The finance ministry thinks that they are prepared to pay another Rs 30,000-40,000 crore over and above the budgeted target.

According to the finance ministry, hikes in diesel prices will contribute around Rs 30,000-40,000 crore for under-recoveries. If you have a crisis in Syria and crude oil prices go up further then this number would increase. Sources in the finance ministry are saying that petroleum and food subsidy of around Rs 40,000 crore will be financed within the Budget itself and there will be no need for a higher fiscal deficit target.