In the light of surging fuel prices, global rating agency Moody's expects the union government to ask the state-owned oil companies, Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Limited (OIL) to share the country’s fuel-subsidy burden, the brokerage said in a client report.
Moody’s expect that the fuel subsidies could total Rs 340-Rs 530 billion in fiscal year 2019, the highest since fiscal year 2015, assuming that Brent price average about $60-$80 per barrel in the period.
“The government has budgeted for Rs 250 billion of fuel subsidies in fiscal year 2019, leaving a shortfall of Rs 90-Rs 280 billion, which could be met by ONGC and OIL entirely, or in part if the government increases the budget allocation for these subsidies,” Moody’s said in a report.
ONGC and OIL will be asked to take some burden of the fuel subsidy if Brent price remain above $60 per barrel for the fiscal year 2019, due to government’s widening fiscal deficit, Moody’s said, adding that the two companies have not contributed to fuel subsidies since June 2015, but have in previous years paid for over 40% of India's annual subsidy bill.
The brokerage added that the government should intervene to address the rising fuel prices by reducing excise duties for petrol and diesel. Excise duties make up over 20% of retail selling prices and were started in 2016, when oil prices fell.
“The Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) will not be asked by the government to share the fuel subsidy. These companies have been asked to share less than 1% of total fuel subsidies since fiscal year 2012,” Moody’s said.