Subsidy bill set to exceed budget estimate

The unprecedented hike in international crude oil prices is likely to balloon the subsidy burden of the government, breaching the budget estimates of Rs.1,34,411 crore, according to Economic Survey 2011-12. With international crude prices averaging $111 in 2011 against $80 a barrel in the previous year, the government's payout to keep domestic retail price of auto and cooking fuels as well as fertilizers is likely to rise sharply. “What is critical here is that policies need to be in place to cater to the uncertainties that might arise during the course of the year, particularly in dealing with risk like global oil prices that have acquired a systematic nature,” it said. It said while the budget estimate (BE) 2011-12 puts subsidies at Rs.1,34,411 crore, given the build-up so far in crude prices, they are likely to be much higher this year. Major subsidies grew appreciably in 2010-11 and were at Rs.1,31,212 crore. Fertilizer subsidy would also exceed the budgeted target due to rise in imported cost as well as an increase in input fuel cost. “Petroleum products subsidies have also gone up in recent years on account of high global prices of crude petroleum. Given the high headline inflation levels, the pass through of global prices to the domestic market was limited,” the survey said. The survey also projected that the proposed Food Security Bill would lead to a rise in subsidy levels. “In so far as food subsidies are concerned, the National Food Security Bill seeks to correct the under-consumption by the poor and other vulnerable sections and might entail some rise in levels of subsidy when operationalised,” it added.