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Oil bonds in India: Facts and fiction

Tharun Thatikonda

On September 10th 2018 BJP party claimed that “Modi govt paid off the pending bills of worth Rs. 1.3 lakh Crore” by posting below tweet in their party official twitter handle.

Facts first

Oil Bonds were issued by the Indian government during the days when the prices of petrol/diesel were regulated. Instead of paying the Oil Marketing Companies (OMCs) for the subsidies extended on petrol/diesel & other oil products, the governments used to issue oil bonds as compensation to these companies. Oil bonds are like long dated government securities of 10-20 years.

However, the government deregulated petrol price in 2010 and diesel price in 2014. Henceforth, it allowed oil marketing companies to decide on the prices of fuel, considering the change in international oil prices and currency exchange rate. So, no oil bonds were issued by the government after 2010.

As per annexure 6E of the receipt budget 2014-15, titled ‘Special Securities Issued To Oil Marketing Companies In Lieu Of Cash Subsidy’, the total value of pending oil bonds by the end of 2013-14 was Rs 1,34,423 Crore. From above document it can be clearly noticed that the present NDA government paid Rs 3,500 Crore worth oil bonds which matured in 2015. As per annexure 2E of the receipt budget of 2018-19, the pending liabilities stand at 1, 30,923 Crore.

From the above information it is understood that pending liabilities when the NDA government took over were Rs 1,34,423 Crore and by 2018-19, the liabilities stand at Rs 1,30,923 Crore. In net, the NDA government repaid only Rs 3,500 crore worth of oil bonds which matured in the year 2015.

Fiction from BJP’s wand

From the above evidences we can come to a conclusion that this NDA government paid only Rs 3,500 crore worth oil bonds which matured in 2015 and Oil Bonds worth Rs 1.3 lakh Crore are still pending and tweet made by BJP party is not true!

All the interest payments made by Government of India are recorded in a document called ‘Interest Payments’. In the document under section 6.01 it can be noted that for FY 2018-19, government is committed to pay Rs. 9,990 Crore as an interest on oil bonds to oil companies.

Interest payment reports of previous financial years reveal that the current NDA government paid a total of Rs 40,225 Crore towards interest on oil bonds in the 4-year period between 2014-15 and 2017-18. Whereas, the UPA-1 (2004-05 to 2008-09) government paid a total of Rs 16,664 Crore and the UPA-II (2009-10 to 2013-14) government paid total of Rs 53,163 Crore.

The total amount of excise duty collected by the Government of India between 2014-15 & 2017-18 was Rs 7,49,485 Crore. During the same period, the government made a total payment of Rs 43,725 Crore towards repayment & interest on oil bonds. Clearly, the payment on oil bonds is less than 6% of the total excise duty collected on petrol/diesel!