Rise in oil cos' loans means widening of fiscal deficit

Oil companies’ borrowings have the potential to throw the government math into disarray.

With the government’s compensation for subsidised sale of fuel not forthcoming, the state-run oil firms have been heavily borrowing from banks to pay for their crude oil imports.

According to a report in Business Line, Indian Oil Corporation has borrowed Rs 95,000 crore as of now. In comparison, the combined borrowing of the three oil firms in March stood at Rs 1,27,000 crore.

[caption id=“attachment_502344” align=“alignleft” width=“380”]  According to an earlier_Economic Times_ report, the combined borrowing in September stood at Rs 1,70,000 crore. Reuters[/caption]

Adding the borrowings by the other two-Bharat Petroleum and Hindustan Petroleum-to this, the number will shoot through the roof.

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According to an earlier_Economic Times_ report, the combined borrowing in September stood at Rs 1,70,000 crore.

The figure is sure to prove the government’s estimates on fiscal deficit wrong and also impact banks’ credit growth.

The reason for the increase in borrowing is the government’s failure to compensate these companies for the subsidised sale of fuel.

If at least half of this amount is taken into account, the government’s fiscal deficit will be much higher than estimated.

The government hopes to keep its fiscal deficit at 5.3 percent of GDP, according to a report in the Economic Times today.

According to the report, Finance Minister P Chidambaram is personally fine-tuning the “credible and feasible path of fiscal correction” he is planning to unveil in the near future.

For this, the government is pinning its hopes on 2G spectrum auction and divestment the report said.

Earlier in September, the government had said that it will stick to its borrowing plan of Rs 5.71 lakh crore for the financial year. But economists had raised doubts about this.

“It is very difficult to stick to the budgeted borrowing plan of the current financial year in the wake of under-recoveries of oil marketing companies, among other subsidies. Though the government can do it through raising non-tax revenues (through disinvestment), there is a limit to that also,” Crisil chief economist DK Joshi had told PTI.

As regards banks’ advances, the actual growth is unlikely to be anywhere near the current figure if borrowings by oil companies are excluded.

During 1 April-7 September, banks’ advances grew 1.2 percent, a Reuters report said.

According to the report, banks’ credit stood at Rs 47,49,694 crore.