Government Says It Is 'Burdened' By Oil Bonds. Is It Really?

Outstanding oil bonds are at just over Rs 1.3 lakh crore and the annual interest outgo is just under Rs 10,000 crore.

Finance Minister Nirmala Sitharaman gestures as she speaks during a news conference in New Delhi, India. (Photographer: T. Narayan/Bloomberg)
Finance Minister Nirmala Sitharaman gestures as she speaks during a news conference in New Delhi, India. (Photographer: T. Narayan/Bloomberg)

The liability of oil bonds issued by the UPA government in 2012 are preventing the Modi administration from cutting excise duty on petrol and diesel, according to Finance Minister Nirmala Sitharaman.

“I’m paying the burden of oil bonds. If I had the money, I would have given relief in petrol prices,” she told reporters on Monday, adding that government has paid Rs 70,195 crore in interest on oil bonds in the last five years. By FY26, the government will need to pay another Rs 37,340 crore in interest on these securities, before they come up for redemption.

The UPA government had issued oil bonds of Rs 1.44 lakh crore in 2012. Citizens have a right to be concerned about high prices of fuel and unless states and centre discuss a way out, there is no resolution, Sitharaman said.

The government has faced questions over the high level of excise levies on petrol and diesel, particularly as crude prices have risen. The levies mean that petrol prices have risen to above Rs 100 per litre in a number of cities. Despite the questions raised, the central and most state governments have refrained from cutting excise taxes.

The Oil Bond Math

According to government data, roughly Rs 1.3 lakh crore in oil bonds are outstanding. They come due up until 2026. The government's total outstanding debt stands at Rs 116.21 lakh crore. In the current financial year alone, it will borrow Rs 12 lakh crore.

The annual interest paid on oil bonds is close to Rs 10,000 crore. This compares to an overall interest outgo of Rs 6.93 lakh crore in FY21 and an estimated outgo of Rs 8.1 lakh crore in FY22.

The quantum of excise duty collections is also higher, particularly since levies on petrol and diesel have been increased.

In FY21 alone, the government, according to a response in Lok Sabha, earned Rs 3.45 lakh crore from excise duties on petrol and diesel. Overall, excise duty collections in FY21, according to data from the Comptroller General of Accounts, stood at Rs 3.9 lakh crore.

As such, the quantum on interest paid on oil bonds and even the outstanding amount of such securities is much smaller than the amount generated via levies on fuel products. It is also a fraction of the government's overall debt and interest outgo.

Other Highlights Of Sitharaman's Comments

The finance minister also said that the government will be able to pay GST compensation to states comfortably if the revenue trends continue.

The GST collections have improved substantially. We expect revenues to remain buoyant," she added.

GST revenue for June, collected in July, stood at Rs 1,16,393 crore, according to a statement from the Ministry of Finance. That's about 25% increase over the preceding month, and 33% higher year-on-year.

As far as the inflation is concerned, Sitharamam expects it to be within the RBI's comfort band.

“There has been constant monitoring of essential goods and their supplies and all supply constraints are being dealt with,” she said.

Sitharaman added the overall situation of the public sector banks have improved and they have enough liquidity and capital. She said PSBs raised Rs 58,700 crore in FY21 and made profits of Rs 31,816 crore.