Why govt is not cutting petrol, diesel prices; Rs 1.3 lakh cr oil bond repayments due for cheap fuel in past

Of late, retail fuel prices hit over Rs 100 per litre in many states, including national capital Delhi.

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 1.3 lakh crore 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 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 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 a lakh crore rupees.

What are oil bonds? Why did governments issue?

The government has a liability to pay Rs 20,000 crore 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 1.30 lakh crore.

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 1,30,923.17 crore. This means an amount of Rs 1,30,923.17 crore was the total value of pending oil bonds by the end of 2020-21.

Special Securities Issued to Oil Marketing Companies In Lieu Of Cash Subsidy

Narendra Modi’s NDA government first came into power in 2014. During its regime, two tranches of bonds, 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 2015

Two oil bonds maturing this fiscal; Modi govt to pay Rs 20,000 cr

In 2019, Narendra Modi’s NDA government came into power for the second consecutive time. According to the budget documents, oil bonds worth Rs 41,150 crore are due for maturity 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 last decade. It is likely that the government will pay a similar amount of interest for outstanding bonds for the current fiscal as well. So, the total bond repayment and interest on the outstanding oil bonds stands around Rs 20,000 crore for the current fiscal.

Not just UPA, but Atal Bihari Vajpayee-led govt also issued

However, oil bonds were issued not only by the UPA government but also by Atal Bihari Vajpayee-led NDA government. According to the budget speech of 2002-03, the then Finance Minister Yashwant Sinha said that the government would issue oil bonds. “The Oil Pool Account will be dismantled on April 1, 2002, and the outstanding balances will be liquidated by issue of oil bonds to the concerned oil companies.”

*First published on www.financialexpress.com on Saturday, July 10, 2021