Subsidy burden to surpass budget estimate on high crude prices

 The government's subsidy burden this fiscal will surpass the budget estimates of Rs 1,34,211 crore due to higher payout in fuel subsidies following high global crude oil prices, the Economic Survey 2011-12 said.

With international crude prices averaging USD 111 per barrel in 2011 against USD 80 a barrel in the previous year, the government's payout to keep domestic retail price of auto and cooking fuels as well as fertilisers would see a substantial rise.

"What is critical here is that policies need to be in place to cater to the uncertainties that might arise during the course of the year, particularly in dealing with risk like global oil prices that have acquired a systematic nature," the document, that is considered a guide to the Budget, said.

While the budget estimate (BE) 2011-12 put subsidies at Rs 1,34,411 crore, given the build-up so far in crude prices, they are likely to be much higher this year, the survey said.
Major subsidies grew appreciably in 2010-11 and were at Rs 1,31,212 crore, the document, which was placed in the Parliament by Finance Minister Pranab Mukherjee today, said.

Despite the high global crude prices, the government did not pass on most of the increase in retail prices of petrol, diesel, domestic LPG and kerosene to the consumers.
State-owned oil firms are projected to lose about Rs 1,35,000 crore this fiscal on selling fuel below cost. The government would have to make up at least half of this from Budget.

Also, fertiliser subsidy would exceed the budgeted target due to rise in imported cost as well as an increase in input fuel cost.

"Petroleum products subsidies have also gone up in the recent years on account of high global prices of crude petroleum. Given the high headline inflation levels, the pass through of global prices to the domestic market was limited," the survey said.

The survey also projected that the proposed Food Security Bill will lead to a rise in subsidy levels.

"In so far as food subsidies are concerned, the National Food Security Bill seeks to correct the under-consumption by the poor and other vulnerable sections and might entail some rise in levels of subsidy when operationalised," it predicted.