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Updated on: Tuesday, August 17, 2021, 07:09 PM IST

Teji Mandi Explains: Nirmala Sitharaman puts oil bonds in focus again but does it justify high excise duty?

The Finance Minister has held oil bonds of the UPA era responsible for failing to cut excise duty, which lead to exorbitant prices of petrol and diesel. With this, the issue of Oil Bonds has resurfaced again. This article aims to explain what these oil bonds are and assess the relevance of the issue.
Finance Minister Nirmala Sitharaman | ANI Photo

Finance Minister Nirmala Sitharaman | ANI Photo

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The Finance Minister recently ruled out the possibility of cutting excise duty on petrol and diesel. She held oil bonds - issued during the UPA era responsible for elevated prices of petrol and diesel. In her words, pending payments of subsidized fuel given previously by the previous government have tied her hands.

The FM here referred to the oil bonds issued by the UPA government to keep fuel prices artificially down. Effectively, the FM is saying that since the government has to repay these oil bonds, it is not able to cut excise duty on fuels and bring relief to the common citizens. That makes oil bonds our today's topic of discussion:

The Oil Bond Story

Fresh from the global financial crisis of 2008, the then UPA government was under pressure to manage its finances. For better money management, it decided to slash financial subsidies given to oil companies on petroleum products. It left these oil companies with no other option but to increase the prices of petrol-diesel.

The economy was already in a bad shape and rising fuel prices could have put an additional burden on it. So, the government came up with a plan of issuing oil bonds to oil companies. With these bonds, the government convinced oil companies to keep oil prices down even if they had to take losses. They could cover their losses (That too, with interest) by redeeming the bonds upon maturity.

After the UPA went out of power, the responsibility of honouring these bonds fell upon the current regime. In the last seven years, (As FM puts it) the Modi government has paid the interest of Rs 70,195.72 crore on these oil bonds.

An additional payment of Rs 1.34 lakh crore, is lined up till 2026. It includes payment of Rs 10,000 crore in FY22, Rs 31,150 crore in FY24, Rs 52,860.17 crore and Rs 36,913 crore respectively in FY25 and FY26.

Is the Argument Convincing?

The opposition has countered this claim by stating that the excise duty that the government is collecting is far more than the total Oil Bond liabilities.

A prima facie evidence also suggests that the argument holds merit. Take Minister of State for Petroleum and Natural Gas, Rameswar Teli's statement for instance. Last month, the Minister stated in parliament that the government collected Rs 3.35 lakh crore as tax on petrol and diesel in FY21. It is far more than the required amount of Rs 1.34 lakh for repayment of oil bonds.

This argument raises a question mark over not slashing the excess excise duty and provide relief to the public. For records, excise duty on petrol was hiked to Rs 32.9 from Rs 19.98 per litre last year.

Closing Comments

Keeping the political blame game aside, let's focus on reality. Prices of petrol and diesel continue to hover above Rs 100 in all the major Indian cities. It continues to pinch common citizens and all they want is relief from this burden.

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Published on: Tuesday, August 17, 2021, 07:09 PM IST
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