Petrol Price Cut on the Horizon? Modi Govt's Reduced Support to OMCs Sparks Expectations

The Indian government has decided to cut its financial support to state-owned fuel retailers for green energy projects. Originally, Finance Minister Nirmala Sitharaman had announced a substantial equity infusion of Rs 30,000 crore in Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) to aid their transition to cleaner energy. However, the finance ministry has now reduced this amount to Rs 15,000 crore and postponed a plan to spend Rs 5,000 crore on buying crude oil for strategic underground storages.

The decision to scale back funding is said to be influenced by changing trends in the oil markets. While other state-owned oil companies are investing heavily to achieve net-zero carbon emissions, the equity support has been restricted to the three fuel retailers. These companies faced significant losses in 2022 when they held retail prices steady for petrol, diesel, and cooking gas (LPG), despite a surge in crude oil prices following Russia's invasion of Ukraine.

According to the finance ministry, the budget for 2023-24 allocates Rs 35,000 crore for capital investments in energy transition, net-zero goals, and energy security by the Ministry of Petroleum and Natural Gas. Out of this, Rs 30,000 crore was designated for capital support to oil marketing companies (OMCs) IOC, BPCL, and HPCL for green energy and net-zero initiatives. The remaining funds were set aside for purchasing crude oil for storage in Mangalore and Visakhapatnam.

During a meeting on November 30, 2023, the Expenditure Finance Committee decided to cap the equity infusion into OMCs at Rs 15,000 crore for the fiscal year 2023-24, without providing specific reasons for the decision. Industry insiders speculate that the move might be tied to the improved profitability of the three firms in the current fiscal year, as they have been able to maintain retail prices despite a softening in crude oil prices.

Regarding the plan to buy crude oil for strategic storage, the finance ministry stated that the Department of Expenditure, Ministry of Finance, recommended deferring the proposal due to emerging trends in oil markets. Sources suggest that the reduction in equity infusion and the delay in crude oil purchases may be linked to the government's efforts to keep the fiscal deficit to 5.9% of GDP in the current fiscal year ending on March 31.