Indian Government to Cover Half of Subsidy for Fuel Costs

The government of India will shoulder as much as half of the subsidy expenditures from the oil companies managed by the state. Since Indian oil companies sell fuel at a lower cost, their losses have already increased as crude has stayed above $100 per barrel.

According to oil minister S. Japial Reddy, the subsidy, which is also termed as under-recovery, may reach up to one trillion rupees. It is higher compared to the estimated amount of 750 billion rupees by the Indian oil head.

Currently, India has an informal scheme of shouldering 30% of the total cost of selling different kinds of fuels on all state-owned oil companies at regulated prices. These costs may come from selling liquefied petroleum gas, gas oil, cooking fuels and kerosene.

The government’s action to formalize the agreement and pay a bigger share could raise the country’s burden on finances. However, it could lift the increasing losses of all state-run companies from trading their fuels lower than the production cost.

This could also help investors place a better evaluation on share sales proposed for several Indian oil companies such as Oil and Natural Gas Corp and Indian Oil Corp.

Increasing prices on diesel and other fuel appears very much unlikely as inflation is already widespread among major market worldwide, including the corruption cases the government are involved to this year.

However, the government has one alternative to cut off responsibilities on crude, as well as other refined petroleum products. This will minimize the load of all state-owned oil companies to sell their cooking fuels and diesel at a much lower market price.

Categorized | Business

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