Leading business chamber and rating agencies have termed the decision of the Union Cabinet on Friday to raise the number of subsidised LPG cylinders from nine to 12 per household a year as retrograde and would be credit negative for oil marketing companies (OMCs).
In a statement on Friday, Federation of Indian Chamber of Commerce and Industry (FICCI) president, Sidharth Birla said the decision of the government to de-link LPG subsidy from aadhaar and increase the cap of subsidised cylinders to 12 from April this year is an economically retrograde step at a time when fiscal considerations must be balanced with welfare steps.
He said the government must continue its endeavour to curtail subsidies and correctly target them, to improve expenditure efficiency. “FICCI believes that the roll out of the direct cash transfer scheme last year was a step in the right direction. We need to recognise that implementation is a drawn-out process and cannot be without glitches. “We do not have the luxury of taking two steps forward and one backwards", he added.
Global credit rating agency ICRA termed it as a credit negative OMCs. “The hike in quota is expected to increase the subsidy burden by Rs. 5,000 crore on an annual basis and adversely impact state-run OMCs which are already reeling under a very high subsidy burden, aggravated by elevated crude oil prices and depreciation of the rupee,’’ it said in a statement.
Besides increasing the overall subsidy burden, the move could result in diversion of subsidised LPG to the commercial sector and shift the burden of LPG subsidy on the OMCs, it said.
Senior vice president and co-head, Corporate Ratings, ICRA, K. Ravichandran said the increase in under recoveries of OMCs coupled with the delays in compensation by Government is likely to strain the already stressed financial position of the OMCs leading to higher requirements of short term debt and higher interest expenses (which are not compensated by the government).