For oil marketing companies such as Indian Oil, BPCL and HPCL the benefit will be marginal — mainly an improved cash flow that will reduce working capital loans and, hence, interest burden.

MUMBAI: This year's e economic survey has flagged off the dangers of higher crude oil price and its potential impact on India's huge subsidy bill. The survey makes the point that controlling expenditure on subsidies would be crucial. The domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with their prices prevailing in the international market, the government's economic report card says.

Weighed against this backdrop, the prospects of the Finance Minister unveiling a few measures to help curtail petroleum subsidies in FY14 appear bright. One such measure could be to restrict the per liter subsidy on diesel and kerosene and per cylinder for LPG.

Any step in this direction will be positive for petroleum companies and will help the sector's re-rating. However, the benefits won't be uniform. For oil marketing companies such as Indian Oil BSE 0.64 %, BPCL BSE -1.79 % and HPCL BSE -0.90 % the benefit will be marginal — mainly an improved cash flow that will reduce working capital loans and, hence, interest burden.

Ultimately the burden of subsidies is borne by the government and upstream oil companies such as ONGC BSE -0.22 %, Oil India BSE -0.61 % and Gail BSE -0.45 % and, thus they will be the biggest beneficiaries of any subsidy cuts.

The net realisation of ONGC, for instance was just $46.9 per barrel for the April - December 2012 period, although crude oil price averaged $109.7. The company shared Rs 37,108 crore towards subsidy during this period. Thus a reduction in subsidy will improve ONGC's net realisation and would add Rs 900-930 crore to annual top line.