BLAME GAME MUST END
Indian Economy & Market|September 2021
UNDERSTANDING THE OIL BOND MATH
Shivanand Pandit

In the present financial year 2021-2022, the government has increased the price of petrol 39 times and decreased once, while the diesel price was increased 36 times and decreased twice. In 2020-2021, the price of petrol was raised 76 times and reduced 10 times and that of diesel increased 73 times and decreased 24 times.

Nevertheless, the Finance Minister Nirmala Sitharaman says that she would not be able to slash excise duties anytime soon quoting the load of UPA-era oil bonds. She declared that the Union government has to assume the liability of payments in lieu of oil bonds issued by the UPA government to subsidize fuel prices and a substantial amount of money is going for interest payment and principal settlement.

The truth is even the NDA government under Atal Bihari Vajpayee also issued oil bonds. So if finance minister continues singing the same song and blame UPA government for oil bonds load, surely the math does not bear out her. Rather she should try to reach out States and make a sincere effort to include all petroleum products in the GST ambit.

The price of petrol and diesel has sustained at record high and people across the country are experiencing its pinch. Nevertheless, the Finance Minister Nirmala Sitharaman recently mentioned that she would not be able to slash excise duties on prices of petrol and diesel anytime soon quoting the load of UPA-era oil bonds. Of late, she declared that the Union government has to assume the liability of payments in lieu of oil bonds issued by the UPA government to subsidize fuel prices and a substantial amount of money is going for interest payment and principal settlement.

In India, the cost of a liter of petrol or diesel has three elements - the base price of the fuel, the excise duty imposed by the Union government, a dealer’s commission, and the VAT imposed by states. VAT is one of the only sources of income for states, as it doesn’t fall into the ambit of GST and doesn’t go into the Consolidated Fund of India.

Like other debt bonds, oil bonds are debt instruments issued to investors or lenders when the government, or corporate entities, borrows money for a specified tenure of time at a fixed interest rate. Basically, bonds are securities offered by borrowers to lenders comprising particulars of any loan obtained and an assurance to repay them. Precisely, oil bonds are unique kinds of bonds that are issued to OMCs namely Indian Oil, Hindustan Petroleum and Bharat Petroleum. These entities have received oil bonds from the government in lieu of cash grants.

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