Bloomberg News

India Finance Ministry Recommends Limiting Subsidy on Diesel

March 15, 2012

India’s government should pay a fixed amount per liter as diesel subsidy to cut spending and shield it from rising crude prices, the finance ministry said.

Shifting the burden of higher oil prices to consumers would curb consumption of diesel and limit the government’s subsidy bill, the ministry said in its annual economic survey presented in parliament today.

“What is important is that the subsidy should be pre- specified so that, thereafter, government stays fully out of the picture,” according to the survey.

The government controls prices of some fuels and gives refiners cash as partial compensation for sales below cost. The oil ministry has sought 420 billion rupees ($8.4 billion) as subsidy from the finance ministry for losses from sales of diesel, kerosene and cooking gas in the six months ending March 31, Oil Secretary G.C. Chaturvedi said Dec. 21.

Indian Oil Corp. (IOCL), the nation’s biggest refiner, Bharat Petroleum Corp. (BPCL) and Hindustan Petroleum Corp. (HPCL) lost a combined 567.3 billion rupees on diesel sales in the nine months ended Dec. 31, according to oil ministry’s website.

Brent crude in London trading, a benchmark for India, has increased 16 percent this year. The April contract, which expires today, was down 9 cents at $124.88 on the London-based ICE Futures Europe exchange at 2:32 p.m. Singapore time.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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