The Centre is likely to cut the oil subsidy bill by over 60 per cent in FY15. A report from ET suggests that it is making the move due to global oil prices reaching a new multi-year low. The Central Government currently provides subsidies to the oil companies’ on the price of diesel, domestic LPG and kerosene.
The Centre in 2013-2014 provided a subsidy of Rs 70,772 crore while the upstream firms spent Rs 67, 021 crore from their side. Thanks to oil prices dropping below the $84 a barrel mark, the loss out of selling diesel, domestic LPG and Kerosene at lower than import cost now stands at Rs 86,080 crore as compared to Rs 1, 39, 869 crore in the previous fiscal.
Thanks to these combined factors, the report suggests, that the diesel under-recovery has been wiped out last month and retailers have been making a profit of Rs 2 per litre of diesel. In this light, it seems logical that the price of diesel should have gone down and is expected to happen next week. The delay is likely due to the elections in Maharashtra and Haryana.
It’s a good sign that the Centre has decided to cut the subsidy by such a significant amount as this will help stabilise prices in the long run. This also means that if the situation were to suddenly get adverse, the government would still have room to adjust prices without significant outcome.
