Don't see FY14 oil subsidy bill exceeding Rs 80,000 cr: FM

Finance Minister P Chidambaram today stressed that the government will be able to meet its FY14 target of 4.8 percent fiscal deficit as oil subsidy is seen falling this fiscal on adoption of export parity pricing, reports Aakansha Sethi.

It must be noted that Budget had estimated Rs 65,000 crore for oil subsidy in FY14. However the government has decided to provide Rs 45,000 crore of cash subsidy to oil marketing companies (OMC) towards the fourth quarter of 2012-13 for underrecoveries, which leaves only Rs 20,000 crore for current fiscal towards oil subsidy.
However FM clarified that apart from Rs 20,000 crore, Rs 60,000 crore will be contributed by upstream companies, making a total of Rs 80,000 crore that will go towards covering under recoveries.
Also there is going to be change in the mechanics of how subsidy is calculated and distributed. The government has already set up a committee headed by Kirit Parikh who will be studying pros and cons of using export party prices for calculating OMCs under recovery. On Wednesday, Petroleum minister Veerappa Moily agreed to price petroleum products using export parity as proposed by finance ministry to cut down government's oil subsidy burden.
For the last several months, the finance ministry has been demanding oil companies to move towards export parity away from trade parity. However, the proposal was rejected by the oil ministry on grounds that the oil marketing companies would lose too much money and that their balance-sheets would be severely weakened.
"So we hope that the amount of subsidy that will have to be given will also reduce and apart from that Rs 80,000 crore will be there, Rs 60,000 crore from oil companies and Rs 20,000 crore from the Budget, and that should suffice,” Chidambaram said.
Meanwhile, Chidambaram tried to sooth investors who were distraught by sudden fall in global and local markets. He said that US Fed Reserve statement has been misunderstood and there was no need for any kind of nervousness. The quantitative easing in Europe and Japan will continue he said.