The government would have easily given relief from high oil prices if it did not had to bear the cost of oil bonds that the previous government had issued to companies, Finance Minister Nirmala Sitharaman told reporters today.
The United Progressive Alliance (UPA) government under former Prime Minister Manmohan Singh had issued oil bonds – or instruments in lieu of cash subsidy to oil marketing companies – that are up for redemption now.
“If I had not incurred the UPA’s oil bonds worth over Rs 1. 4 lakh crore, I would have given relief from petroleum prices,” Ms Sitharaman said, explaining why she can’t cut excise duty on petrol and diesel for now.
Finance minister Nirmala Sitaraman made a strong statement against the previous UPA government and said, “They (UPA) took credit for keeping the prices of fuels low. But today the government is paying through the nose for the trickery the UPA indulged in. I can’t provide any relief due to the oil bonds worth Rs 1.44 lakh crore issued by 2012 by the UPA.”
During a ministry briefing, Nirmala Sitharaman said that in 2014-15, the Centre paid Rs 10,255 crore as interest payment on oil bonds. Since then for six fiscals, the centre has been servicing an interest payment of Rs 9989.96 crore every year.
The minister said that the total interest to be paid from 2021-22 and 2025-26 is 37,340 crore and the total repayment due in the period is 1.3 lakh crore.
Nirmala Sitharaman added: “The UPA committed a trickery and now I have to pay for their posturing that they kept the prices of fuels down. The total interest payment outgo during these years has been Rs 70,195 crore.”
The finance minister’s anguish stems from the fact that the NDA government led by the Bharatiya Janata Party (BJP) is under pressure ahead of five crucial assembly polls including Uttar Pradesh over high fuel prices.
More than two and half dozen state capitals in the country have petrol prices above Rs 100 per litre. That along with the rising prices of commodities like cooking oil is fuelling a negative perception about the government.
But despite the pressure, the government led by Prime Minister Narendra Modi has not yielded to the demand due to the legacy issue of oil bonds and a subsequent bill worth Rs 1.3 lakh crore.
Currently, central and state taxes make up for up to 60 per cent of fuel prices. The Centre had collected nearly Rs 3.72 lakh crore in excise duty on crude oil and petroleum products in 2020-21 due to the high levies.
State governments were not behind as they collected Rs 2.03 lakh crore in VAT and sales tax. The states, in fact, made a kill each time the market-administered prices went up as their levy is a percentage of the price of fuels. In addition, they also receive 41 per cent of the central collection as per the finance commission’s recommendations.
The NDA government’s liability towards the redemption of outstanding oil bonds worth over a lakh crore rupees last year became a major burden for the government in the wake of higher expenses incurred to battle the Covid-19 pandemic, which already dented revenue generation from sources like GST.
A quick look at the 2021-22 receipt budget shows that under the ‘Special Securities Issued to Oil Marketing Companies In Lieu of Cash Subsidy’, the pending liabilities for oil bonds were 1,30,923.17 crore which means that an equivalent amount was the total value of pending oil bonds by the end of 2020-21.
Since the government led by Narendra Modi came into power in 2014, two tranches of bonds — worth Rs 1,750, each (Rs 3,500 crore) — matured in 2015. After 2019, when the government returned to power, oil bonds worth Rs 41,150 crore became due for maturity between 2019-2024
Responding to a query on Tamil Nadu cutting down fuel prices by Rs 3 per litre, the finance minister said, “They raised the price by Rs 7 and then brought it down by Rs 3. The government is keeping its doors open on the inclusion of fuels in GST. But till states agree that relief can’t be provided.”