The Indian petroleum sector continues to suffer from a lack of policy reforms that are piling up the subsidy bill as global crude oil prices stay above $100 per barrel and the rupee stays weak near 56 against the dollar. The subsidy bill has already reached an estimated 47,811 crore for the June 2012 quarter and would touch the highest-ever annual figure of 1,50,000 crore for FY13.
The biggest item on the subsidy bill is diesel, where the retailers are suffering under-recovery of almost 12.1 per litre now. This is down from an average per litre discount of 13.2 in the April-June quarter, but still very high. As diesel prices have been artificially maintained low for a prolonged period its demand has started growing substantially in 2012. The petroleum ministry's research wing, Petroleum Planning and Analysis Cell (PPAC), reported recently that diesel, which was earlier replacing just petrol and fuel oil, has now started substituting CNG as well. The country's petroleum consumption pattern is thus getting distorted in favour of cheap diesel. In the Delhi region, the price gap between a kg of CNG and a litre of diesel, which was 8.45 a year back, has narrowed to below 3 influencing the preference of new car buyers. According to PPAC, India's petroleum consumption increased 4.9% in FY12 to 148 million tonne. Diesel alone represented 67% of the additional volumes for the entire year. Even in the first three months of FY13, diesel demand has grown nearly 10% year-onyear. Diesel represented over 58% of the petroleum sector's total under-recoveries in FY12, which moved up to 60.7%in June ’12 quarter. The fast-growing consumption of this heavily subsidised fuel could increase the ultimate burden on the exchequer. On the other hand, India's petroleum production continues to stagnate. For the first quarter of FY13, oil production at 9.53 million tonne was 2.3% below target and 0.5% below the year-ago level. Natural gas production during the quarter at 10.86 billion cubic metres also was down 11.1% against the year-ago period.
As domestic demand grows and production stagnates India's dependence on imports is growing. For the June quarter, the country's petroleum imports - net of exports and excluding LNG - are up around 5.6% against the yearago period at 33.3 million tonne. However, the import bill is up nearly 23.5% at 1,35,224 crore. This has proven to be a key factor in weakening the rupee's value. In a positive step, the petroleum ministry has come out with the draft shale gas exploration policy and is inviting comments on the same. However, unless some structural reforms are introduced the industry as well as the government's budget will continue to suffer.
The biggest item on the subsidy bill is diesel, where the retailers are suffering under-recovery of almost 12.1 per litre now. This is down from an average per litre discount of 13.2 in the April-June quarter, but still very high. As diesel prices have been artificially maintained low for a prolonged period its demand has started growing substantially in 2012. The petroleum ministry's research wing, Petroleum Planning and Analysis Cell (PPAC), reported recently that diesel, which was earlier replacing just petrol and fuel oil, has now started substituting CNG as well. The country's petroleum consumption pattern is thus getting distorted in favour of cheap diesel. In the Delhi region, the price gap between a kg of CNG and a litre of diesel, which was 8.45 a year back, has narrowed to below 3 influencing the preference of new car buyers. According to PPAC, India's petroleum consumption increased 4.9% in FY12 to 148 million tonne. Diesel alone represented 67% of the additional volumes for the entire year. Even in the first three months of FY13, diesel demand has grown nearly 10% year-onyear. Diesel represented over 58% of the petroleum sector's total under-recoveries in FY12, which moved up to 60.7%in June ’12 quarter. The fast-growing consumption of this heavily subsidised fuel could increase the ultimate burden on the exchequer. On the other hand, India's petroleum production continues to stagnate. For the first quarter of FY13, oil production at 9.53 million tonne was 2.3% below target and 0.5% below the year-ago level. Natural gas production during the quarter at 10.86 billion cubic metres also was down 11.1% against the year-ago period.
As domestic demand grows and production stagnates India's dependence on imports is growing. For the June quarter, the country's petroleum imports - net of exports and excluding LNG - are up around 5.6% against the yearago period at 33.3 million tonne. However, the import bill is up nearly 23.5% at 1,35,224 crore. This has proven to be a key factor in weakening the rupee's value. In a positive step, the petroleum ministry has come out with the draft shale gas exploration policy and is inviting comments on the same. However, unless some structural reforms are introduced the industry as well as the government's budget will continue to suffer.
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