Government denies its finances in a mess

By Ruchi Bhatia

The government is staring at a "fiscal quagmire" as there is no relief in sight from surging oil prices and a falling rupee.

Secretary for Economic Affairs Subhash Chandra Garg immediately denied the report. "A news agency has published an item attributed to unnamed Finance Ministry official about dividend getting reduced from oil marketing companies, subsidies cut, lesser disinvestment revenue etc. This is completely fabricated. Nothing of this is true at all," Garg tweeted.


Sources told ETNow that lack of dividends from oil marketing companies this fiscal could prove to be a major headache. Shortfall in GST mop-up and divestment is expected to give the government a hard time on the fiscal front too.

The Rs 1.5 excise duty cut on oil price is projected to result in a revenue loss of 10,500 crore for the Centre.

With their back to the wall after the recent cut in petrol and diesel prices, oil retailers may find it tough to pay dividend this financial year, citing the price sharing formula.

OMCs (oil marketing companies) see an erosion of Rs 5,000-6,000 crore in EBITDA because of this pricing mechanism. The government is factoring in this scenario, looking at a hit of Rs 8,000-10,000 crore to its exchequer.

What may give more trouble to the government is that the oil companies are also seeking an additional subsidy of Rs 10,000-12,000 crore for LPG and kerosene this fiscal.

GST is not helping matters either. Average GST collection run rate is likely to lead to a shortfall of Rs 1.5 lakh crore.

On top of that, a likely shortfall of Rs 30,000 crore in divestment in 2018-19 might create complications for the government's fiscal calculations, the sources added.

The finance ministry has gone on record saying it will stick to the fiscal deficit target and there will be no breach.

Various options, including shifting subsidies to the next fiscal, are on the government's table. It may have to bite the bullet and ask ministries to keep their excess expenditure on a tight leash.