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Apr-Jun 2013 Earnings Preview
Export‐parity pricing likely to be adopted in
place of import/trade parity
Fuel subsidy bill of Rs 1610 bn would have
been lower by Rs 176 bn in FY13 on export
parity pricing
The Finance Ministry has been successful in altering the mandate of the Kirit Parekh
Committee constituted to suggest a suitable pricing mechanism for petro-products
from import/trade parity to export-parity. Currently diesel is priced at trade parity,
80% import and 20% export. LPG and kerosene are priced at import parity. The
Finance Ministry wants diesel and kerosene to be priced on import parity and LPG
pricing to be based on a mix of 60% exports and 40% import parity rates. A shift to
export parity would have lead to a reduction in diesel subsidies by Rs 143.72 bn to Rs
776.89 bn in FY13. LPG and kerosene subsidies would have come down by Rs 22.45
bn and Rs10 bn respectively. Total subsidy savings would have been Rs 176.18 bn
from FY13’s total fuel subsidy bill of Rs 1610.29 bn. In April 2013, the Budget had
estimated fuel subsidy bill for FY14 at Rs 800 bn which has swollen to Rs 1250bn due
to the sharp slide in the Rupee and increase in under-recoveries despite small
monthly increases of Rs 0.50/litre in diesel prices.
Food Security Ordinance promulgated
regarded as “game changer” by a section
of the poll‐bound Congress Party
67% of population legally entitled to get
5kgs of food grains per person per month.
(Rice at Rs3/kg, Wheat at Rs2/kg or Millets
at Rs1/kg)
Foodgrain requirement estimated at 612.3
lakh tones per year.
Food Subsidy bill to bloat by 25% to 1.25
lakh crores
Food Security Ordinance promulgated- 25% rise in annual fuel subsidies likely,
populist measure widely regarded as “game-changer” by a section of the poll-bound
Congress Party The government has promulgated an ordinance on food security that
seeks to give a legal right to monthly food handouts to 67% of the population (75%
of rural and 50% of urban population) or approximately 800 mn people at a fraction
of their market price. Government will supply rice at Rs 3/kg, wheat at Rs 2/kg and
millets at Re 1/kg. People would be entitled to 5 kg of subsidised grain per month.
The total estimated foodgrains requirement is 612.3 lakh tonnes per year. The law
comes into effect immediately but has provided States six months window to
identify the eligible households in a fair and transparent manner. The annual food
subsidy bill is expected to swell to Rs 1.25 lakh crores. Government has provided Rs 1
lakh crore provided in the FY14 Budget as food subsidy but the full impact will be felt
only in FY15 when all the States start the rollout after identifying eligible
beneficiaries. The poorest-of-poor 24.3 mn families covered under the Antyodaya
Anna Yojana (AAY) scheme under the PDS would continue to get legal entitlement of
35 kg of foodgrains per family per month.
Food security concerns‐ Bloated subsidy
burden hitting fiscal health, squeezing of
private traders by FCI, shift in cropping
patterns endangering foodgrains
production & increased leakages
There are concerns that private grain traders will be squeezed out of the market by
the government-owned Food Corporation of India (FCI). Also, some farmers may
shift to other remunerative crops and fulfil their own requirements through
subsidized grains affecting foodgrain output. The dangers of leakages and other
malpractices cannot be ruled out. Any substantial rise in food subsidy bill would
pressurize the government’s already precarious fiscal situation. The government
needs to get this cleared in the Parliament within six weeks of Parliament’s next
sitting.
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