While Prime Minister Narendra Modi’s government faces growing clamour to rein 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. Over all Petrol, Diesel price hike is a legacy of Congress Govt.
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. However, the government is ostensibly using this tax to mop up many for payment of dues towards redemption of oil bond worth over a lakh crore rupees.
Previous governments issued oil bonds
Oil bonds were issued in lieu of cash subsidy to oil marketing companies 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 payment 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.
Issuing oil bond is the main reason behind the hike in fuel prices
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. Union Minister Dharmendra Pradhan (before the recent Cabinet reshuffle) blamed the UPA regime for issuing bonds, saying that this is the main reason behind the hike in fuel prices. He said that the Congress-led UPA, left lakhs of crores dues which the Modi government has to pay in the coming years.
Hike in petrol and diesel prices has been a legacy of UPA’s mismanagement- Amit Malviya
He also stated that there has been a rise in the prices of crude oil in the international market. To fulfil 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.
Modi Govt to pay Rs 20,000 crore
In 2019, Narendra Modi’s 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. 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 stand around Rs 20,000 crore for the current fiscal.