Oil is inflammable in more ways than one. In India, the price of petrol and diesel fuel has always made for great politics, even if it has not exactly been great economics. The oil bonds controversy that has popped up again stands testament to this.
With petrol and diesel prices scaling new highs since assembly elections folded—even crossing the psychologically significant 100-rupee mark in some places—the government has been on the back foot. Its latest line of defence? The high prices are due to the previous UPA regime’s issuing of oil bonds to oil companies.
“The increased prices of petrol and diesel is a legacy of UPA’s mismanagement,” alleged BJP’s IT cell chief Amit Malviya, “We are paying for the oil bonds that will come up for redemption…issued by UPA to oil companies for not increasing retail prices then!”
About Rs 10,000 crore worth of bonds will mature this year, meaning the government will have to pay out to the oil companies. The total comes to 1.4 lakh crore rupees, to be paid out over the next five years.
Simply put, oil bonds are government securities issued to oil marketing companies instead of direct cash payouts, normally done through budget subsidies. As global crude oil prices shot up drastically in the years following the US invasion of Iraq, the UPA government of Manmohan Singh decided not to increase retail petrol and diesel prices correspondingly. Prices had hit an all-time high of $147 in the summer of 2008—compared to around $71 presently.
Instead of compensating the oil marketing companies like Indian Oil and Bharat Petroleum (who had to pay the high international prices to import oil into India) through subsidies—which could have breached the budget's fiscal deficit targets—it smartly settled on oil bonds, which would not have shown as budgetary expenditure.
Between 2005 and 2010, oil bonds worth Rs 1.4 lakh crore were issued, helping to keep petrol and diesel prices in India steady and way below international prices. It may have staved off a fiscal deficit and the political fallouts of high fuel prices, but now they have become handy weapons for the present government to defend its case.
Interestingly, this is not the first time the oil bonds bogey has been dusted out by BJP leaders. In September 2018, amid a similar situation where the retail price of petrol and diesel were higher than global oil prices, the ruling party’s leaders had given the same explanation, that the high prices are due to the interest payment and maturity repayment of the oil bonds imposed on them by the previous UPA regime.
“The country (is) yet to recover from the shock of oil bonds worth 1.4 lakh crores issued (by) UPA,” petroleum minister Dharmendra Pradhan had said then.
But detractors say oil bonds—be it capital or interest payments—amount to barely a drop when it comes to the total income the government is amassing by keeping fuel prices high. While interest payment on oil bonds annually over the last decade has been around Rs 10,000 crore rupees, bond redemption so far has been just Rs 3,500 crore in the last seven years of the Modi government (with Rs 10,000 crore coming up later this year).
Compared to that, the central government’s income from taxes and surcharges on petrol and diesel topped Rs 3 lakh crore in FY21.
