Diesel subsidy for 2013-14 could be capped at Rs 6/litre
In its attempt to reduce oil subsidy, the Centre has already capped the sale of subsidised domestic cooking gas cylinders to households at nine per year. Petrol prices are already de-regulated and OMCs have the freedom to revise its prices according to global prices. Diesel and kerosene have so far not been touched but the government now wants to restrict its commitment only to kerosene. The Kelkar report on fiscal consolidation has advocated a phase-wise reduction of subsidy even for kerosene and transferring the benefit directly of beneficiary through cash payments.
Analysts said the liquidity position of OMCs is expected to improve over the medium term, resulting in reduced under-recoveries and lower debt levels. They reckon that the proposed gradual increases in diesel prices would help correct the disparity between prices of diesel and alternative fuels like CNG and PNG, benefiting city gas distribution players.
It is likely that the government would let upstream oil companies ONGC, Oil India and GAIL cut their share of the subsidy burden corresponding to, if not more than, the overall decrease in the oil subsidy burden. The hike in the number of subsidised LPG cylinders from six to nine per household per year would, however, increase the under-recoveries by Rs 9,300 crore annually.
The under-recovery on diesel is estimated at Rs1 lakh crore by the end of this fiscal. The under-recovery on diesel for the period April-December is