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Oil subsidy may triple to 2.2 per cent of GDP
June, 02nd 2008

India's oil subsidy may shoot up three times to 2.2 per cent of the GDP this year even as the government dithers on raising fuel prices in step with the rise in input (crude oil) cost.

The country paid $8.7 billion in oil subsidies in 2007 or 0.7 per cent of the GDP.

In 2008 when GDP is slated to grow to $1.34 trillion, the subsidy may jump to $18.1 billion at $100 a barrel crude price, and to $23.4 billion at $115. At current market price, it would rise to USD 29.2 billion, Credit Suisse said in its latest report on subsidies in Asia.

State-run fuel retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum face a revenue loss of Rs 225,040 crore on sale of petrol, diesel, domestic LPG and kerosene this fiscal on not being allowed to align retail prices with cost.

BPCL and HPCL would run out of cash to even import crude oil in July while IOC can sustain imports till September. Yet, even after several rounds of consultations at the level of Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi, no decision has been taken on either raising retail prices and/or cutting duties.

"India with a high net import content, is in greater need for price hikes," Credit Suisse said pointing that the country imported 75 per cent of its oil needs.

On the other hand, China, which imports 52 per cent of its oil needs, is continuing price caps and yet would see subsidies rising to only 0.3-0.8 per cent of the GDP.

India marginally subsidises LPG and kerosene from the Budget and meets less than half of the revenue loss on fuel sales through issue of oil bonds. It issued IOC, BPCL and HPCL oil bonds worth Rs 35,290 crore in 2007-08 fiscal.

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