Rahul Gandhi’s wish is Veerappa Moily’s command. Each household will now get 12 subsidised LPG cylinders a year — up from the earlier nine. This means year-long cheap cooking gas supply to almost 97 per cent of about 15 crore homes that use it.
But pleasing Paul means Peter has to grin and bear it. In this case, the oil marketing companies — Indian Oil, BPCL, and HPCL — will have to pick up the tab for an additional ₹5,000 crore a year. This is over and above the ₹41,000 crore they will already incur as under-recoveries on sale of subsidised gas cylinders this fiscal.
This burden will be shared by the government (which provides cash compensation) and the upstream oil companies — ONGC, Oil India and GAIL — which sell their products at a discount to the oil marketers. What are these under-recoveries? They are not losses, which happen when products are sold at less than cost. Oil companies ‘under-recover’ when they sell products below market price. The companies claim that at present, they incur under-recoveries of ₹8.47 a litre on diesel, ₹37.33 a litre on kerosene, and a whopping ₹762.70 a cylinder on LPG. All of this adds ups to a daily under-recovery of ₹464 crore.
From April to December 2013, total under-recoveries were a shade over ₹1 lakh crore. How did that number get this big, given that the Centre had started to increase diesel price by 50 paise a month? The slipping rupee soaked up some of the benefit from that until September 2013.
Also, with the election looming, politics started taking precedence over good economics. So, the monthly diesel price hike has been happening in fits and starts. Add to this the sudden increase in the supply of cheap LPG cylinders and the subsidy bill is set to rise.
Under-recoveries in 2013-14 may be in excess of ₹1,43,000 crore. This is next only to the ₹1,61,029 crore burden in 2012-13, the annus horribilis for oil firms when a rise in crude oil price and a weak rupee played havoc.
In fact, under-recoveries this year may have beaten all records had the rupee not strengthened from 68 to 62 against the dollar in September-December. Also, since June 2010, there has been no under-recovery on petrol, prices of which are periodically adjusted to reflect market rates.
That said, under-recoveries in 2013-14 from subsidised LPG cylinders are expected to be the highest so far — excluding the additional burden from Rahul Gandhi’s ‘request’. Also, subsidies on kerosene may be the highest ever in 2013-14.
Not exactly the kind of records we would like to see broken. But all’s fair in love and elections.