Quick Take | Govt may delay payment of subsidy on petroleum products, OMCs could take a hit

Ruchi Agrawal Moneycontrol Research

With mounting pressure on the fiscal math, the government is now considering rolling over the subsidy outstanding on petroleum products to the first quarter of the next year. While this would provide some relief to the government on the fiscal deficit front, the same would mean higher outstanding subsidy for the oil companies and would potentially push up their interest cost burden.

Higher than expected spending, sharp uptick in crude during the year and lower than budgeted revenue receipts have led to a fiscal misbalance. With several planned expenses still in the pipeline, the government is now looking for measures to prevent a fiscal breach.

Liquefied petroleum gas (LPG) and kerosene are two petroleum products which are subsidised by the government. At current prices around Rs 21 per litre is the subsidy on kerosene and almost Rs 435 per cylinder is the subsidy on LPG cylinders. While initially the total oil subsidy was expected to be 25000 crore, news reports suggest that it could shoot up sharply from the initial expectation and reach almost Rs 45000 crore for FY19 due to a sharp uptick in crude prices in the first half of the year.

The first half of FY19 has already reported a subsidy of almost 17300 crore, whereas the subsidy sum for FY18 was around Rs 25500 crore.