The government may offer cash to compensate state-run oil firms for selling fuel at lower than market price, but it would not widen the fiscal deficit for the year to end-March, the finance secretary said on Tuesday.
The oil ministry had sought Rs200 billion ($4.27 billion) of bonds for state-run firms as compensation for 2009-10 following an upward swing in global crude prices.
But the finance ministry prefers to pay cash over and above the Rs31.09 billion estimated in the July budget.
"The decision will be taken at the highest level...tentative thinking is that, we will give them cash before March 31," Ashok Chawla told reporters.
The government recently obtained parliament approval for extra spending of Rs257.25 billion, and there are worries any further cash outgoing would widen the government's deficit.
But Chawla said, "We are of the view that we will be able to manage that, even within the existing budget so that we will not overshoot the fiscal deficit of 6.8%."
The government has been issuing bonds to cover losses at state oil refiners like Indian Oil Corp and Bharat Petroleum Corp Ltd, which are required to sell fuel at lower than market price to control inflation and help the poor.
In the fiscal year 2008-09 (April-March), the oil subsidy was Rs758.5 billion as high global crude prices had inflated state-run oil firms' losses.
"There is no specific decision on how much compensation is required to be given to oil marketing companies," Chawla said referring to this year's requirement.
Issuance of oil bonds bulks up unwanted debt for a government, struggling with a 16-year high fiscal deficit being funded by a record market borrowing of Rs4.51 trillion.
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