Oil Bonds

CONTEXT:

In a recent press conference about the finalising of the taxation aspects for overseas listing of shares by Indian companies, Finance Minister Nirmala Sitharaman stated that the Centre will not cut excise duty on petrol and diesel to provide relief against high prices, indicating towards the oil bonds issued by the previous government.

FOR PRELIMS:

• Oil bonds are special securities issued by the government to oil marketing companies in lieu of cash subsidy.
• These bonds are typically of a long-term tenure like 15-20 years and oil companies are paid interest.
• Before the complete deregulation of petrol and diesel prices, oil marketing companies were faced with a huge financial burden as the selling price of petrol and diesel in India was lower than the international market price.
• This ‘under-recovery’ is typically compensated through fuel subsidies allocated in the Union budget. However, between 2005 and 2010, the UPA government issued oil bonds to the companies amounting to Rs 1.4 lakh crore to compensate them for these losses.
• Compensation to companies through issuance of such bonds is typically used when the government is trying to delay the fiscal burden of such a payout to future years.
• These types of bonds are considered to be ‘below the line’ expenditure in the Union budget and do not have a bearing on that year’s fiscal deficit, but they do increase the government’s overall debt.

Sources

• The Indian Express
• The Print