Union Budget 2013: Hard times wear out subsidy cushion

NEW DELHI: However bumpy the road, fuel and fertilizer pricing reforms are here to stay.
That’s the immediate intent the government has projected by pegging the 2013-14 subsidy 11% lower than the revised estimates for the ongoing fiscal — especially if seen in the backdrop of finance minister P Chidambaram’s resolve to slash fiscal deficit to 4.8% of GDP. A little over Rs 220,971 crore has been provided to subsidize fuels, fertilizers and food in 2013-14 against Rs 247,854 crore in the revised estimates for 2012-13.
Oil subsidy, one of the major headaches for the government, has been projected at Rs 65,000 crore for 2013-14 against the revised estimate of Rs 96,880 crore in 2012-13 fiscal.
K Ravichandran of credit rating agency ICRA said the fuel subsidy is sufficient if the decision on partial decontrol of diesel price is fully implemented. “However, if crude prices were to rise further and under-recoveries (of state fuel retailers) persists on diesel, more subsidy would be required,” he said.
This could mean two things. The government would keep raising pump price of diesel till it’s on a par with market rate. Or, it could fix the subsidy at, say, Rs 3-4 a litre, and raise the retail price till the gap is bridged.
The government has already capped the number of subsidized domestic LPG cylinders in a year to nine. This would help control subsidy on this fuel, leaving kerosene as the main guzzler of subsidy.
Fertilizer subsidy, too, has been pegged slightly lower at Rs 65,971 crore for 2013-14 as against the revised estimate of Rs 65,974 crore in 2012-13. Some Rs 15,544 crore would go to subsidize imported urea, Rs 21,000 crore for indigenous (urea) fertilizers, and Rs 29426 crore for the sale of decontrolled fertilizers (DAP, MOP and complexes) at a subsidized rate.
But there’s a catch. Politics or a sustained spike in global oil prices could upset the government’s arithmetic. The Economic Survey had on Wednesday warned that continuous high rates of crude can push up the fuel and fertilizer subsidy bill. This is borne out by the revised estimate for 2012-13, which is 38% higher than the budget estimate of Rs 179,554 crore.
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