The oil subsidy bill could be slashed by half in the next fiscal from Rs 40,915 crore if crude remains within $45-55 per barrel.
Sources said North Block is considering many factors in its subsidy calculations, including the crude price.
The petroleum ministry is considering to limit the subsidy to BPL families by excluding those with an annual taxable income of over Rs 7 lakh per annum.
However, the signs of a pick-up in global growth and an increase in oil demand could lead to a price flare-up and upset the subsidy calculations.
US Energy Information Administration (EIA) expects Brent prices to average $49 per barrel in 2021 up from an expected average of $43 in the fourth quarter of 2020. Goldman Sachs in its bullish forecasts says it could touch $65 per barrel in 2021.
Industry chambers have pitched for a rationalisation of subsidy at a time tax revenues have shown a steep decline and non-tax revenues not comfortable.
The government should free up fiscal space by cutting back on India’s “non-merit" subsidies which, according to studies, amount to around 2 per cent of the gross domestic product at the Central level.
Non-merit subsidies are the additional subsidies which are provided beyond “merit subsidies” for food, education and health. The space so created by reducing the non-merit subsidies could be used to fund infrastructure.
The chambers have pitched for a policy of giving subsidised kerosene and LPG through direct benefit transfer only to BPL families.
