Government may reduce oil subsidy allocation by half in FY22 Union Budget

A rather stable phase of oil price is expected to help the government make big cuts in the oil subsidy allocation in next year's budget. The maths being worked out by the Finance Ministry ahead of the presentation of Budget 2021-22 in February next year could see petroleum subsidy burden falling by more than half from the FY21 levels of Rs 40,915 crore.

A major saving on the subsidy is expected to come from reduced government support for domestic LPG cylinders. A favorable global oil market, during the first half of the current fiscal, helped the government to completely eliminate the subsidy paid under direct benefit transfer (DBT) to eligible domestic consumers from September this year.

While a slight firming of global oil prices has raised domestic LPG prices (non-subsidized) by Rs 100 per 14.2 kg cylinder in December to Rs 694, even if a Rs 100 per cylinder subsidy is to be provided by the government during FY22, the allocation towards this end would be just about Rs. 14,000 crore. 

The government had allocated Rs 40,915 crore as petroleum subsidy for FY21, a 6 per cent increase from Rs 38,569 crore allocated for the last fiscal. Out of this, the allocation for LPG subsidy has been increased to Rs 37,256.21 crore for the current year.

Source: Business Standard