Budget 2021: Fuel subsidy to be half its target this fiscal

Owing to a decline in global crude oil and product prices in 2020-21, India’s kerosene and cooking gas subsidy during the current financial year is likely to be around half of the targeted Rs 40,915 crore. The subsidy for the year is expected to be around Rs 21,000 crore.

While kerosene subsidy is nil during the year, the government has eliminated cooking gas subsidy in several states since May 2020. Despite this, the government is in no mood to do away with fuel subsidy in the upcoming budget for 2021-22, as propane and butane prices are on a rise in the international market.

Out of the expected Rs 21,000 crore for the current financial year, Rs 16,960 crore are arrears for the financial year 2019-20. According to data available with the Petroleum Planning and Analysis Cell, during the first half of the financial year, liquefied petroleum gas (LPG) subsidy was seen at a mere Rs 3,018 crore, as against a targeted Rs 37,256 crore during the year. The decline in subsidy in 2020-21 is projected to be at least 14 percent less than Rs 24,468 crore in 2019-20.

The subsidy target was kept high this fiscal keeping the average crude oil prices at around $60 a barrel, at par with the average crude oil prices of 2019-20. However, triggered by lockdown and Covid-driven consumption drop, the Indian Basket crude oil prices dropped to an average $39.32 a barrel from April to December period of the current financial year, with the average monthly prices even dipping to a historic low of $19.9 a barrel in the month of April.

The subsidy target was kept high this fiscal keeping the average crude oil prices at around $60 a barrel

India consumes around 26.3 million tonne (MT) of LPG per annum, while its production comes to around 12.8 MT. On the other hand, it consumes 2.4 MT of kerosene and produces around 3.2 MT per annum.