Higher under-recoveries by oil cos could hurt budget - Citi

A bank employee counts currency notes at a cash counter inside a bank in Agartala February 26, 2010. REUTERS/Jayanta Dey/Files

MUMBAI (Reuters) - The positive response to India’s 3G spectrum auctions is seen cushioning this year’s budget but higher under-recoveries for oil companies due to rising oil prices could play spoilsport, Citigroup said in a note on Monday.

Citigroup said the federal budget estimates 3G and broadband wireless access (BWA) auction receipts at 360 billion rupees.

However, with proceeds from 3G itself crossing 516 billion rupees and BWA likely to raise about 100 billion rupees, revenues from telecom auctions would provide a cushion of 300 billion rupees on the non-tax revenue front, it said.

On the other hand, higher oil prices and lack of adjustment in domestic prices could result in under-recoveries rising from 460 billion in 2009/10 to 1,000 billion rupees in 2010/11 -- which could put pressure on the federal budget, Citi said.

The government has formed an empowered group of ministers headed by Finance Minister Pranab Mukherjee to work out a mechanism for oil price deregulation, which is expected to reach a decision by May and would be key in determining the extent of under-recoveries.

The government has also pegged the divestment receipts at 400 billion rupees and it is on track to achieve those targets but a key concern is the continued market appetite for public offers, particularly in the wake of contagion risks from EU-periphery economies, it said.

Reporting by Neha D’silva; editing by Sunil Nair