While Prime Minister Narendra Modi’s government faces growing clamour to rein in rising petrol and diesel prices by cutting taxes, the reason for it not yielding to the demand can be traced back to the early 2000’s. The present and the next governments have a bill worth Rs 1300 billion to pay, thanks to the then governments’ largesse of keeping petrol and diesel prices in check.
Of late, retail fuel prices hit over Rs 100 per litre in many states, including national capital Delhi. Notably, various central and state taxes make up for up to 60 per cent of fuel prices. The central government mopped up Rs 3720 billion in excise duty on crude oil and petroleum products in the last financial year 2020-21; while the state governments collected Rs 2030 billion in sales tax and VAT on petrol and diesel. On the other hand, the government has to pay towards the redemption of outstanding oil bonds worth over 1000 billion rupees.
What are oil bonds? Why did governments issue?
Oil bonds were issued in lieu of cash subsidy to oil marketing companies (OMCs) in former Prime Minister Manmohan Singh’s UPA era, and also Atal Bihari Vajpayee’s NDA rule. These sovereign oil bonds, issued in favour of oil companies Indian Oil Corp, HPCL and BPCL, were transferable, allowing these companies to raise immediate cash at the time. The government, being the issuer, would bear the interest payments and redemption at maturity. During that time, OMCs were selling fuel at lower than international market prices to keep it affordable. The government compensated those companies for it
The government has a liability to pay Rs 200 billion in the current fiscal year 2021-22 in the form of bond repayment and interest on the outstanding oil bonds. While for the next six years, the government has a total debt obligation worth Rs 1300 billion.
Union Petroleum Minister Dharmendra Pradhan (before the recent Cabinet reshuffle) blamed the UPA regime for issuing oil bonds, saying that this is the main reason behind the hike in fuel prices. He said that the Congress-led UPA, left billions dues which the Modi government has to pay in the coming years. He also stated that there has been a rise in the prices of crude oil in the international market. To fulfill the domestic needs, India has to import 80 per cent oil, which is the main reason for the rise in petrol, diesel prices.
Last month, Amit Malviya, national president of the IT cell of the BJP, in a tweet said that the increase in petrol and diesel prices has been a legacy of UPA’s mismanagement. “We are paying for the oil bonds that will come up for redemption starting FY2021 till (2026), which were issued by UPA to oil companies for not increasing retail prices then! Bad economics, bad politics,” a part of the tweet read.
Total oil bonds payout stands at Rs 1300 billion. In the 2021-22 receipt budget, as per annexure 6E titled ‘Special Securities Issued to Oil Marketing Companies In Lieu Of Cash Subsidy’, pending liabilities related to oil bonds were Rs 1309.2317 billion. This means an amount of Rs 1309.2317 billion was the total value of pending oil bonds by the end of 2020-21.