FACT CHECK:- Modi govt is paying the price for UPA-era low petrol prices.
BJP’s national in-charge of information and technology department Amit Malviya had recently claimed that the hike in fuel prices was due to the “mismanagement” of the United Progressive Alliance (UPA) government.
The increased prices of petrol and diesel is a legacy of UPA’s mismanagement. We are paying for the oil bonds that will come up for redemption starting FY2021 till 26, which were issued by UPA to oil companies for not increasing retail prices then! Bad economics, bad politics.
The increased prices of petrol and diesel is a legacy of UPA’s mismanagement.
We are paying for the oil bonds that will come up for redemption starting FY2021 till 26, which were issued by UPA to oil companies for not increasing retail prices then!
Bad economics, bad politics. pic.twitter.com/I4hZR0i1K8
— Amit Malviya (@amitmalviya) June 20, 2021
This is not the first time for the NDA government to make such a claim. On September 10, 2018, an infographic was tweeted from the official handle of BJP which claimed that the NDA government has repaid pending oil bonds worth Rs 1.3 crore along with interest of Rs 40,000 crore.
What the economist PM Manmohan Singh said & did on petroleum prices? He said that money does not grow on trees & left unpaid bills of oil bonds worth Rs. 1.3 lakh crore. Modi govt paid off the pending bills with interest because 'we should not burden our children'. #NationFirst pic.twitter.com/Z8zTV1kG1i— BJP (@BJP4India) September 10, 2018
Amit Malviya’s claim is untrue as the government has not paid any outstanding oil bonds since March 2015. Of the Rs 1.44 lakh crore bonds issued by the UPA government between 2005 and 2010, there are two bonds worth a total of Rs 3,500 crore that matured during the NDA rule in 2015. According to the government’s budget document, the next bond under Annex 6A to 6H is due to mature in October 2021.
The first set of oil bonds were issued during the BJP government’s regime in 2002. On March 30, 2002, Ram Naik, the then Union Petroleum Minister in the Atal Bihari Vajpayee-led government said bonds worth Rs 9,000 crore were issued by the Reserve Bank of India (RBI) to liquidate 80% of the oil pool deficit. “Although it is true that the current NDA government inherited the debt, it is also true that this has been happening since 2002. The present government could have anticipated this situation,” economist Ajit Ranade told Boom.
Further, the current outstanding balance of these bonds has remained unchanged. When the NDA came to power in 2014, the pending liabilities of oil bonds was Rs 1,34,423 crore, according to data from Annexure 6E of the receipt budget 2014-15 titled ‘Special Securities Issued To Oil Marketing Companies In Lieu Of Cash Subsidy’. The only set of oil bonds due for maturity during the 2014-19 NDA’s term were the two sets of bonds which matured in 2015, amounting to Rs 3,500 crore. After repaying Rs 3,500 crore, in 2018, the pending liabilities stood at Rs 1,30,923 crore. Since then, the number still stands at Rs 1,30,923, showed the latest March 2021 budget receipt.
What are oil bonds?
Oil bonds are special securities issued by the government to oil marketing companies in exchange for cash subsidies. According to the RBI, a bond is a debt instrument in which an investor loans money to a corporate or government entity which borrows funds for a defined period of time at a fixed interest rate.
These bonds are typically for longer tenures like 15-20 years and interest is paid to the oil companies. Before full regulation of petrol and diesel prices, oil marketing companies faced heavy financial burden as the selling price of petrol and diesel in India was lower than the international market price.
Why did the UPA government issue bonds?
The UPA government issued oil bonds worth Rs 1.4 lakh crore between 2005-06 and 2009-10 as it lacked sufficient funds. “During the UPA period, the government issued oil bonds instead of paying oil companies, which were selling various products at a price which was not viable to them. This was done to control the expenditure and, in the process, control fiscal deficit. All governments do this in different forms. The current government is doing it for food subsidies,”
The purpose of oil subsidies is to make oil accessible for the poor at a price which is lower than the cost of production. “There are several elements to this. Essentially the government has been trying to deregulate oil prices completely. This can be done only when the poor are given direct cash benefit transfer, as cushion against sharp rise in price of cooking gas and kerosene. Until then, the oil refining companies sell at a price which is below cost. This is called under recovery which is then reimbursed by the government. The size of this under recovery, or oil subsidy grew substantially, since oil prices climbed to $140 a barrel by 2008,” said Ranade.
“In order to contain the size of the fiscal deficit, the government resorted to paying for the under recoveries by oil bonds. That is the genesis. As the size of the oil subsidy ballooned, so did the issue of oil bonds. And servicing them has become quite prohibitive,” he added.
Interest on Oil Bonds
The UPA and the NDA government have been paying oil bonds for the last 20 years. In its second term, the UPA government paid a total of Rs 53,163 crore in interest for oil bonds in the five-year period between 2009-10 and 2013-14. Whereas, the current NDA government paid a total of Rs 40,225 crore between 2014-15 and 2017-18. The interest payment for 2018-19 was budgeted at Rs 9,989.96. This outstanding amount has not changed since 2015-16.
The government has to repay a principal amount of Rs 10,000 crore this year, according to these documents.
In addition, the government has paid around Rs 10,000 crore annually as interest over the last decade, according to a Rajya Sabha reply by Union petroleum minister Dharmendra Pradhan in December 2018.
Taxation on Fuel
Central government’s tax collection on petrol, diesel jumps 300% in 6 years. Excise duty on petrol has been raised from ₹9.48 per litre in 2014 to 32.90 a litre now while the same on diesel has gone up from 3.56 a litre to 31.80.(Reuters)
Together with excise duty on natural gas, the central government in 2014-15 collected 74,158 crore which has gone up to 2.95 lakh crore in April 2020 to January 2021 period.