Government Budgeting & Fiscal Policy

GS Paper: GS Paper III | Subject: Economy

Prelims

(Key facts, data, schemes, laws, organizations — MCQ-ready points)

Centre approved a one-time budgetary support of ₹10,000 crore to public-sector Oil Marketing Companies (OMCs)
Purpose: stabilise Aviation Turbine Fuel (ATF) prices, shielding airlines + OMCs from global jet-fuel price spikes
Price-stabilisation fund mechanism: a fixed-price arrangement reduces airlines' exposure to sudden fuel-price swings → steadier airfares
In place for 3 years, subject to annual review / until advance is recovered
Eligibility: only Indian carriers (not foreign airlines); carriers must source ATF exclusively from OMCs during the period
Context: protects against fuel-driven airfare inflation and oil volatility from the West Asia (US–Iran) war

(Analysis, dimensions, significance, critique, policy angles — for 10/15 mark answers)

Nature of intervention: Not an open-ended subsidy but a buffer fund that smooths price volatility — closer to a price-stabilisation tool (cf. PSF for onions/pulses) than a direct subsidy
Rationale: ATF is ~40% of airline operating cost and outside GST → exposed to global crude + rupee depreciation; stable ATF protects a connectivity-critical, employment-heavy sector
Fiscal-prudence angle: One-time, time-bound (3 yrs), recoverable design limits fiscal slippage vs. permanent subsidy; but creates a contingent liability if crude stays high
Equity critique: Aviation benefits the better-off; question of why aviation gets a cushion while other sectors face full price pass-through. Also nudges OMC monopsony (mandatory OMC sourcing)
UPSC angle: Price stabilisation funds, contingent liabilities, fuel taxation (ATF outside GST), administered vs. market pricing, fiscal policy tools