Amit Malviya, national in-charge of BJP's Information and Technology department, recently claimed that the hike in fuel prices was because of the United Progressive Alliance (UPA) government's "mismanagement".
"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," Malviya tweeted.
Malviya's claim is untrue because the government has not paid any outstanding oil bonds since March 2015. Out of Rs 1.44 lakh crore bonds issued by the UPA government between 2005 and 2010, only two bonds totalling to Rs 3,500 crore matured during the NDA's regime in 2015. According to the government's budget document, under Annexure 6A to 6H, the next bond is scheduled 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 FactChecker.
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.
Besides, the Indian budgeting system is based on cash flows and not on accrual basis. This means that it is not possible for a government to pre-pay bonds because it has to be repaid over a course of time. "The government budget system works on a cash basis. Unless actual money leaves the bank account of the government it is not counted as an expenditure," Vivek Kaul, author and economic commentator, told FactChecker.
"The government does not work like a corporate. The corporates have some expenses and they make profit at the end of the day and part of the profit is kept as reserves to be used later. It's not the same with the government. The government meets its expenses for any year by earning money in that year," Kaul added.
Blamed Bond Before
This is not the first time for the NDA government to make such a claim. On September 10, 2018, an infographic had been tweeted from BJP's official handle claiming that the NDA government repaid pending oil bonds worth Rs 1.3 crore with an interest of Rs 40,000 crore.
However, this was false too because the BJP government paid only Rs 3,500 crore worth of oil bonds which matured in 2015. This means that oil bonds worth Rs 1.3 lakh crore are still pending.
FactChecker tried contacting Malviya for a comment but has not received a response as yet. We will update the story as and when we do.
But first, let's understand what oil bonds are and what did the UPA government do.
What are oil bonds?
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.
In this case, bonds or securities are issued by the government to public companies like Oil Market Companies (OMC), Food Corporation of India and Fertilizer Companies as a substitute to cash subsidies.
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 because it lacked sufficient money. "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," said Kaul.
Similarly, Ranade explained that bonds have a long life which can range for 15-20 years or more making it obligatory for successive governments to make payments. 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.
As for the current financial year, Rs 5,000 crore of bonds are due to be repaid on October 16 and November 28, 2021, respectively. This totals to Rs 10,000 crore. This means that Rs 10,000 crore worth of bonds of the total Rs 1,30,923 crore of oil bonds, will be repaid during this financial year.
"A back of the envelope calculation tells us that the interest to be paid this year should amount to around Rs 9,500 crore. In the current financial year, the government roughly needs around Rs 19,500 crore in total," said Kaul.
Taxation on Fuel
In 2010, the prices of petrol were determined by the government and were revised every fortnight. In 2014 the price of diesel was also deregulated and since 2017 prices are being revised on a daily basis. Taxation on fuel prices has sharply increased since then.
In response to Malviya's tweet, Randeep Singh Surjewala, general secretary of the Indian National Congress, compared the excise duty charges during UPA's rule and now.
"...1. Modiji has increased Central Taxes on petrol & diesel by ₹23.87 & ₹28.37/litre. 2. Excise on Petrol & Diesel was ₹9.20 & ₹3.46 per litre in UPA. BJP Govt increased that by 258% & 820%, respectively." Surjewala's tweet read.
In 2014-15, when the NDA government came to power, the central excise duty collected was Rs 29,279 crore on petrol and Rs 42,881 crore, according to a response Minister of State for Finance Anurag Thakur gave in the Lok Sabha on March 22, 2021.
Between April 2020 and January 2021, Rs 89,575 crore had been collected as excise duty on petrol and Rs 2,04,906 on diesel. This is more than a 400% increase. To know more about the hike in fuel prices and the reasons behind it, read FactChecker's extensive report on how the government is relying on petrol taxes to afford welfare costs.