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Tax Payers Give More to India’s Oil Sector Than Just Subsidies

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Does India’s state owned oil sector need tax payer’s money? The answer is yes if you look at the sheer subsidy burden it bears in order to meet the cost of ‘under recoveries’. On the other hand, as IndiaSpend’s Sourjya Bhowmick finds out, your taxes go to fund a lot of activities which have little to do with subsidies.

 

First, let’s look at the budgets for Petroleum and Natural Gas in India’s Ministry of Petroleum & Natural Gas. A major expenditure head is petroleum subsidy every year. This subsidy is categorised as Non-Plan expenditure and given to the oil companies to compensate for their under recoveries. But, as we will soon establish, it’s not the largest.

 

The total Petroleum and Natural Gas subsidy in Budget 2012 is Rs 43,580 crore which includes Petrol subsidy, subsidy on LPG, Subsidy on Kerosene for Public Distribution System and Freight subsidy. Interestingly, only Rs 40,000 crore of this amount is to compensate the under recoveries of oil companies. Some Rs 26 crore (which you may not have noticed earlier) is provided as freight subsidy for transporting fuel to the North Eastern areas.

 

Let’s take a look at what has been the subsidy for petroleum and natural gas sector over the years. Of course the 2012-13 final figure or revised estimate is a million dollar question; pun intended.

 

Year Petroleum Subsidy B.E. (in Rs cr) R.E. (in Rs cr)
2012-2013 43,580
2011-2012 23,640 69,481
2010-2011 3,108 38,386*
2009-2010 13,415 14,954

* Rs 35,000 crore of petroleum subsidy was unaccounted in the Budget estimates

Source: Union Budget

 

Thus, for the last few years (2009-10 to 2012-13) the petroleum subsidy bill has been Rs 1,66,401 crore. Another major head is for the Petroleum sector is the Plan outlay. Here’s the Plan outlay over the past few years;

 

Year Budget Estimates (in Rs cr)
2012-2013 79,727
2011-2012 74,851
2010-2011 69,495
2009-2010 57,501

Source: Union Budget

 

A total of Rs 2,81,574 crore has been budgeted as central plan outlay for Petroleum and Natural Gas sector in the last four years. Central Plan outlay includes the Capital expenditure of the PSU’s and the money that they require for exploration, production of crude oil etc. This central plan outlay also includes equity and loans given by the Government.

 

For the last 3 years the total expenditure including almost everything on Petroleum has been Rs 4,47,975 crore (Central Plan Outlay+ Subsidy).

 

Investments In PSUs

 

Let’s now look at the Petroleum Ministry’s investments in public enterprises. There are 10 Public Sector Units (PSUs). The table below shows the investment that each of them gets:

 

PSU’s 2012-2013 Budget Estimates* 2011-2012 R.E. 2010-2011 R.E. 2009-2010 R.E.
Hindustan Petroleum Corporation Limited 3,462 2,828 4,685 2,190
Bharat Petroleum Corporation Limited 4,479 2,199 2,814 3,635
Indian Oil Corporation 10,000 11,000 12,000 12,519
Chennai Petroleum Corporation Limited 786 373 867 919
Numaligarh Refineries Limited 282 90 159 233
Mangalore Refineries Limited 6,817 4,194 3,671 1,116
Oil India Limited 3,378 2,263 4,213 2,375
Oil and Natural Gas Limited 33,065 31,316 29,204 24,720
Gas Authority of India Limited 9,447 6,879 5,765 4,200
Oil and Natural Gas Corporation Videsh Limited 7,910 8,619 6,621 7,024

(in Rs cr)

Source: Union Budget

 

This investment is mainly for ‘exploration and production’, ‘refining and marketing sector’ and for petrochemicals sector. If we add all these amounts, total investment budgeted to these PSU’s come to Rs 2,71,863 crore in the period 2009-10 to 2012-13.

 

The smallest component of expenditure in the Petroleum sector in the Budget 2012 is Rs 79 crore divided into 5 components like Secretariat – Economic Services   (Rs 22 crore), Petroleum Regulatory Board (Rs 13 crore), Society for Petroleum Laboratory (Rs 2 crore), Rajiv Gandhi Institute of Petroleum Technology (Rs 41 crore) and Payment to Indian Strategic Petroleum Reserves Limited for strategic crude oil reserve (Rs 1 crore).

 

Subsidy Increases With Weak Rupee

 

Reports suggest the Government has to add Rs 8,000 crore to its subsidy every time the dollar costs one rupee more. If this is true, there is a high probability that the subsidy budgeted this year will rise eventually. In August 2011 the value of INR to dollar was 44.43 and presently, while writing this article it is 55.65, a 25% increase in 9 months. Thus this increase of Rs 12 in the rupee approx may lead the Government to shell out more than Rs 90,000 crore.

 

However, almost on the April 2010 to this day the petrol price has increased from Rs 52 per litre to Rs 78 per litre quite gradually. But the subsidy as seen from Table number 1 has increased by Rs 1,40,000 crore in this time. One probable reason is the value of INR to dollar has also increased gradually.

 

While much of the headlines are focussed on the Government’s subsidy bill, the country’s oil and gas sector takes up a fair amount of public funds too. It could be argued that some of this is important in the context of energy security. But it’s also clear that this burden need not only devolve on state-owned enterprises. That’s a lengthier debate for another day though.

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