The BJP led central government has been facing criticism for the rising fuel prices. In its defence, on 16 August, Finance Minister (FM) Nirmala Sitharaman
stated that she is incapable of reducing excise duty on fuel because their government has to pay for the oil bonds issued by UPA in the past.
The Indian Express quoted the FM saying, "We don't do so many tricks like the UPA government. They issued oil bonds for which the principal amount is over Rs 1 lakh crore, and for the last seven fiscals, the government has been paying over Rs 9,000 crore interest annually… If I did not have the burden to service the oil bonds, I would have been in a position to reduce excise duty on fuel."
A few days back, Amit Malviya, the National-in-charge of the BJP IT department, made similar claims on Twitter. He called the fuel price hike as 'Legacy of UPA's mismanagement.'
Before analysing the claim made by the Finance Minister, let's understand the basics first.
What are oil bonds?
According to the Reserve Bank of India (RBI), a bond is a debt instrument issued to investors/lenders when a corporate/government borrows funds at a fixed interest rate for a defined period. That means a bond is a security offered by borrowers to investors/lenders, and it contains details of the loan taken.
Here, the government issued the oil bonds to oil marketing companies (OMCs) as a substitute for cash subsidies. Before the bonds, OMCs were receiving cash subsidies, were not free to fix fuel prices and often sold fuel at a lower cost than the world market.
It is worth noticing that the first oil bond was issued during Atal Bihari Vajpayee-led BJP government in 2002 worth 9000 crores. Manmohan Singh government later cleared the bill.
Why UPA issued oil bonds?
After the Financial crisis of 2007–2008, the government was under substantial fiscal pressure. Then Middle East conflict also resulted in a high spike of crude oil at $147 a barrel.
During that time, the OMC's were selling fuel at a considerable lower price than the world market to keep the fuel accessible to the public. But since the world was coping with the consequences of the 2008's economic collision, it was impossible to issue cash subsidies to OMCs without breaching the government's fiscal deficit.
Thus, the UPA government issued oil bonds between 2005-06 and 2009-10 worth Rs 1.4 lakh crore to keep the fuel prices in India steady and significantly lower than the world market.
How much is paid and is due?
The governments are supposed to pay the bond's interest, and a 'pay up' at the time of the bond's maturity. For the past 20 years, both UPA and NDA have been paying the oil bonds. The UPA government had paid an amount of Rs 53,163 crore in interest for oil bonds between 2009-10 and 2013-14. When the NDA government came to power, the amount due for bonds was Rs 1.3 lakh crore. Since then, only two bonds of Rs 1,750 crores have matured for a total of Rs 3,500 crore in repayment. The following bonds are due to mature in October and November 2021, amounting to Rs 5,000 crore each, adding up to Rs 10,000 crore.
The total amount for bond repayment and bond interest will amount to Rs 20,000 crore for the current fiscal year. The government debt obligation will stand at Rs 1.17 lakh crore at the end of the year, to be paid over the next six years.
How much revenue has been generated from fuel
According to Anurag Thakur, Minister of State for Finance, the central excise duty collected by the government was Rs 29,279 crore on petrol and Rs 42,881 crore on diesel for 2014-15. Anurag Thakur responded the same on 22 March 2021 in the Lok Sabha.
However, between April 2020 and January 2021, the total amount of excise duty is Rs 89,575 on petrol and Rs 2,04,906 on diesel, which is more than a 400% increment. The central government's income from taxes and surcharges on diesel and petrol topped Rs 3 lakh crore in FY21.
Congress general secretary Randeep Singh Surjewala while criticizing Finance Minister Nirmala Sitharaman tweeted, "Pl stop falsehood or dare to contradict. BJP government raised central taxes on Petrol and Diesel by Rs.23.87 & Rs.28.37 in 7 years and collected additional Rs.17.29 lakh crores. Don't lie. Oil Bonds of 1.3 lakh Cr are not even due for payment so far."
He further tweeted, "Modi government-generated income from petrol and diesel tax alone in 2020-21 is Rs. 4,53,812 crores and extorted ₹22,33,868 CR by levying excise on Petrol-Diesel in last 7 years."
It is to be noted that while the government has spent Rs 73,440 crore on paying interest and oil bonds, against this they have collected almost Rs. 22.34 lakh crores in the last 7 years through the taxes on petroleum products. That too when the crude oil price is all-time low during BJP government.
Back in 2018, BJP official Twitter handle also tweeted misinformation regarding oil bonds. It reads, "Modi govt paid off the pending bills with interest because 'we should not burden our children." However, oil bonds worth Rs 1.30 lakh crores are yet to be paid.
Former Petroleum Minister earlier also admitted that rise in fuel price is problematic but the government is using the tax money generated from petrol and diesel in Covid-19 welfare scheme. Clearly, the UPA era Oil bonds do not explain the current fuel price hikes.
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