Mumbai: Fitch Ratings says that the Indian budget for the year ending 31 March 2015 (FY15) did not introduce any major new measures for the oil and gas sector and would be neutral for Fitch’s rated oil and gas entities – GAIL Ltd, Indian Oil Corporation, Bharat Petroleum Corporation Ltd, Reliance Industries Ltd and Oil India Ltd – which are all rated ‘BBB-’ with Stable Outlooks.
India will continue to use the current subsidy mechanism for price regulated products, including the gradual price increases for diesel aimed at trimming the state subsidy requirement. The budget did, however, include some measures to encourage production from unconventional hydro-carbon resources.
The government in the budget allocated INR634bn for petroleum subsidies to cover under recoveries, the difference between the market price and government regulated price. Of this amount, INR300bn is for subsidies incurred during FY14, which leaves a balance of INR334bn for the current fiscal year. Fitch estimates that the overall under recoveries are likely to be around INR1trn for FY15 (down from INR1.4trn in FY14), as long as the monthly diesel price hikes of INR0.50 continue and there are no oil price shocks (see Fitch’s “Indian National Oil Companies Dashboard FY14″ published on 4 July 2014).
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