Recently, retail fuel prices exceeded Rs 100 per liter in several states including the national capital Delhi. while the prime minister Narendra ModiThe government is facing increasing demand to rein in the rising prices of petrol and diesel by cutting taxes, a reason why demand did not keep up with the demand in the early 2000s. The present and subsequent governments have a bill of Rs 1.3 lakh crore to pay, which is credited by the then governments for keeping the prices of petrol and diesel under control.
Of late, retail fuel prices exceeded Rs 100 per liter in several states, including the national capital Delhi. Notably, various central and state taxes make up up to 60 percent of fuel prices. Central government withdrew Rs 3.72 lakh crore in excise duty on crude oil and petroleum products in the last financial year 2020-21; While the state governments collected Rs 2.03 lakh crore on petrol and diesel as sales tax and VAT. However, the government is using this tax to raise money for clearing dues for redemption of oil bonds worth over Rs 1 lakh crore.
What are oil bonds? Why did governments issue?
Oil bonds were issued in lieu of cash subsidies to Oil Marketing Companies (OMCs) during the UPA era of former Prime Minister Manmohan Singh and the NDA regime of Atal Bihari Vajpayee. These sovereign oil bonds issued in favor of oil companies Indian Oil Corp, HPCL and BPCL, were transferable, allowing these companies to raise cash immediately. The Government, being the issuer, will bear the interest payment and redemption on maturity. During that time, OMCs were selling the fuel below international market prices to keep it affordable. The government compensated those companies for this.
The government has an obligation to pay Rs 20,000 crore as bond repayment and interest on outstanding oil bonds in the current financial year 2021-22. While the total debt on the government for the next six years is Rs 1.30 lakh crore.
Union Petroleum Minister Dharmendra Pradhan (before the recent cabinet reshuffle) blamed the UPA regime for issuing oil bonds and said this was the main reason behind the hike in fuel prices. They said that CongressUnder the leadership of UPA, lakhs of crores of rupees are due which the Modi government has to clear in the coming years. He also said that the prices of crude oil have increased in the international market. India has to import 80 percent of its oil to meet domestic requirements, which is the main reason for the increase in the prices of petrol, diesel.
Last month, Amit Malviya, National President of IT Cell BJP, said in a tweet that the rise in petrol and diesel prices has been a legacy of UPA’s mismanagement. “We are paying for the oil bonds that will come for redemption from FY2011 (2026), which were issued by the UPA to the oil companies not to increase retail prices! Bad economics, bad politics,” read a part of the tweet.
Total oil bond payment is Rs 1.30 lakh crore
As per Annex 6E in the Receipt Budget for 2021-22, titled ‘Special securities issued to oil marketing companies in lieu of cash subsidy’, the pending liabilities related to oil bonds stood at Rs 1,30,923.17 crore. This means an amount of Rs 1,30,923.17 crore was the total value of pending oil bonds till the end of 2020-21.
Issue of special securities to oil marketing companies in lieu of cash subsidyThe NDA government of Narendra Modi first came to power in 2014. During its rule, two tranches of the bond, worth Rs 1,750 each (Rs 3,500 crore) matured in 2015.
Two tranches of bonds, worth Rs 1,750 each (Rs 3,500 crore), matured in 2015two oil bonds maturing in the current financial year; Modi government will give Rs 20,000 crore
In 2019, the NDA government of Narendra Modi came to power for the second time in a row. As per budget documents, oil bonds worth Rs 41,150 crore are due to mature between 2019-2024. In 2018, Union Petroleum Minister Dharmendra Pradhan said that the government has paid around Rs 10,000 crore annually as interest over the past decade. The government is likely to pay the same interest for the outstanding bonds for the current financial year as well. Therefore, the total bond repayment and interest on outstanding oil bonds for the current fiscal is around Rs 20,000 crore.
Not only the UPA, the government led by Atal Bihari Vajpayee also issued
However, oil bonds were not only issued by the UPA government, but also by the NDA government led by Atal Bihari Vajpayee. According to the budget speech of 2002-03, the then Finance Minister Yashwant Sinha had said that the government would issue oil bonds. “The oil pool account shall be liquidated on April 1, 2002, and the outstanding balance shall be liquidated by issuance of oil bonds to the respective oil companies.”
*First published on www.financialexpress.com on Saturday, July 10, 2021
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