The government is contemplating a reduction in financial assistance to state-owned oil firms in its effort to maintain the fiscal deficit at 5.9% of the GDP. The finance ministry has purportedly conveyed to government-controlled oil refiners, Indian Oil Corp. and Bharat Petroleum Corp. Ltd., that it might slash by half a proposed 300 billion-rupee ($3.6 billion) aid package aimed at supporting investments during the energy transition.
Initially, both companies had planned rights issues to raise funds, with Indian Oil Corp. targeting up to 220 billion rupees and Bharat Petroleum Corp. Ltd. seeking 180 billion rupees, all with government backing. However, sources with knowledge of the matter, who opted for anonymity as the plan is not public yet, suggest that these figures might be reduced by up to 50%.
This adjustment aligns with the government's objective, led by Prime Minister Narendra Modi, to achieve a fiscal deficit of 5.9% of the GDP in the ongoing fiscal year, a decrease from the 6.4% recorded in the previous year. Despite the likelihood of exceeding tax revenue projections, shortfalls are anticipated in various areas, including proceeds from the sale of shares in state-owned entities. Presently, New Delhi has only achieved 100.5 billion rupees from share sales, falling short of the targeted 510 billion rupees.
The 2023-24 budget had allocated 350 billion rupees for "priority capital investments towards energy transition and net-zero objectives, and energy security." Out of this, 300 billion rupees were earmarked for state-owned fuel retailers, while the remaining funds were designated for strategic petroleum reserves. As of now, there has been no immediate response from Indian Oil and Bharat Petroleum spokespeople, and the finance ministry has not responded to inquiries. The refiners are yet to receive formal notification from the government regarding the potential reduction in rights issues, and sources indicate that the companies remain adequately capitalized, with the reduction not anticipated to impact their transition plans.
