{"id":12622,"date":"2021-08-23T00:00:00","date_gmt":"2021-08-23T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/23-08-2021\/oil-bonds-2\/"},"modified":"2025-07-29T17:38:34","modified_gmt":"2025-07-29T12:08:34","slug":"oil-bonds-2","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/23-08-2021\/oil-bonds-2","title":{"rendered":"Oil Bonds"},"content":{"rendered":"<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">In News<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">\u00a0The Union Finance Minister recently repeated a refrain that the Centre had been unduly burdened by the cost of having to service \u2018oil bonds\u2019 issued by the previous government.<\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Due to this, the government is unable to reduce excise duty and other Central levies on petroleum products so as to lessen the burden on consumers.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">What are Oil Bonds?<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Between 2005 and 2010, the government issued <strong>long-dated Special Securities<\/strong>, totalling about ?1.4 lakh crore, to <strong>oil marketing companies (OMCs)<\/strong>.<\/span><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">It included Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation. <\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">These debt securities or bonds <strong>carry coupons ranging from 6.35% to 8.4%<\/strong>.<\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">They were issued <strong>in lieu of cash subsidy to cover the under-recovery that OMCs sustained on account of selling petroleum products below cost<\/strong>. <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The bonds paid an <strong>annual interest to OMCs<\/strong> and on maturity, the face value of the bonds, too, would accrue to them. <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Reasons behind issual of these bonds:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">To reduce the annual fiscal burden and <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">To stagger the liability over an extended period of time.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">Why were they issued only up to 2010?<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Deregulation of Petrol Prices in June 2010:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The UPA government deregulated petrol pricing in June 2010.<\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">It ended under-recovery on the fuel. <\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">No losses from Oct 2014:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">OMCs stopped suffering losses on every litre of diesel they sold from October 2014 due to the deregulation of Petrol Prices.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Price difference between World Market and Domestic Supply was high till 2010:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">As per the <strong>Petroleum Planning &#038; Analysis Cell (PPAC)<\/strong>, during that 5-year period, the price of a barrel of crude oil averaged $70.15.<\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The retail selling price of petrol ranged from a low of ?37.99 to a peak of ?50.62 (in July 2008) over the same period.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">Link between oil cost and retail fuel prices<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Elements of petrol prices delivered to consumers:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The price of crude oil that is processed into the respective fuels, <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Central and State levies and <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Dealer commissions. <\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Price peaked in 2011-12 and then eased slightly by 2013-14:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The price of the Indian basket of crude oil kept rising during the UPA years, starting at an annual average of $39.21 in 2004-05. <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">They climbed to a high of $111.89 in 2011-12. <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Prices eased slightly thereafter to an annual average of $105.52 in 2013-14, before the current government assumed office in May 2014.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Reducing Prices and Increasing Taxes since 2014-15:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Since 2014-15, when a barrel on average cost $84.16, crude prices have been on a downtrend and fell to $44.82 in 2020-21. <\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Excise duty and related Central levies have<\/span><\/strong><span style=\"font-size:12.0pt\">, however, risen sharply <\/span><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">They constitute <strong>almost a third of the pump price<\/strong> of petrol sold in Delhi as in August 2021, compared with just 14% in May 2014. <\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">State taxes have increased at a more gradual pace<\/span><\/strong><span style=\"font-size:12.0pt\"> and risen in <strong>Delhi to 23% of the pump price, from 17% in May 2014<\/strong>.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\"><img decoding=\"async\" id=\"image4.png\" src=\"https:\/\/cfstatic.nextias.com\/cdn-cgi\/image\/format=auto\/file_library\/mix_content\/231813333006380740_image.png\" style=\"height:479px; width:600px\" \/> <\/span><\/span><\/span><\/p>\n<p style=\"text-align:center\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Source: <\/span><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/pujudb\/article36038742.ece\/alternates\/FREE_615\/oil\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12.0pt\"><span style=\"color:#1155cc\">TH<\/span><\/span><\/a><\/span><\/span><\/p>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">Relevancy of the Minister\u2019s contention<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Returns from excise duty &#038; other levies v\/s the expenditure on Bonds<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Far Higher Returns<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">Its receipts by way of excise duty alone almost doubled between FY15 to FY21 (?3,71,726 crore) according to PPAC data.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Much less Expenditure on Bonds<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">In contrast, the principal outstanding for the bonds has barely changed over the last seven years<\/span><\/span><\/span><\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The interest outgo, by the Minister\u2019s own account at a little over ?70,000 crore, averages to just about ?10,000 crore a year.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><u><span style=\"font-size:13.0pt\">Conclusion and Way Ahead<\/span><\/u><\/strong><\/span><\/span><\/p>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">The present regime can easily pay back the bond debt:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The Centre has consistently derived far <strong>higher returns from excise duty and other levies<\/strong> than the expenditure it has so far incurred in relation to the bonds.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Cut down the Central and Excise Duty:<\/span><\/strong><\/span><\/span>\n<ul>\n<li><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><span style=\"font-size:12.0pt\">The exorbitant excise duty of around 1\/3rd of pump price is too high seeing the COVID pandemic, poor economy, high unemployment and high inflation.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial,sans-serif\"><strong><span style=\"font-size:12.0pt\">Source: <\/span><\/strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/are-oil-bonds-to-blame-for-high-fuel-prices\/article36038743.ece#comments_36038743\" target=\"_blank\" rel=\"noopener\"><strong><span style=\"font-size:12.0pt\"><span style=\"color:#1155cc\">TH<\/span><\/span><\/strong><\/a><\/span><\/span><\/p>\n<p>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News \u00a0The Union Finance Minister recently repeated a refrain that the Centre had been unduly burdened by the cost of having to service \u2018oil bonds\u2019 issued by the previous government. Due to this, the government is unable to reduce excise duty and other Central levies on petroleum products so as to lessen the burden [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12623,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-12622","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/4288284current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/12622","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=12622"}],"version-history":[{"count":1,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/12622\/revisions"}],"predecessor-version":[{"id":49571,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/12622\/revisions\/49571"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/12623"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=12622"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=12622"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=12622"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}