Oil bondsDate: 19 April 2022 Tags: Basics of Economics
The government has blamed oil bonds for the high taxes on petroleum products that have resulted in high retail prices.
The oil bonds were introduced during the UPA era when the government in power wanted to subsidize the prices through borrowing.
The retail fuel prices in India depend on two factors: the cost of crude oil, refining charges and taxes imposed on the commodity.
The Finance Minister has blamed Ukraine conflict and oil bonds for the current high prices felt by the customers.
Ukraine conflict has increased the cost of crude oil and oil bonds have forced the government to impose high taxes.
The ministers claim that today’s generation is paying for the subsidy that was given a decade back and this process will continue till 2026.
Oil bonds are promissory notes that the government will pay to Oil Marketing Companies (OMCs) for keeping the prices unchanged.
The government in the past promised companies to pay Rs 1,000 crore in 10 years in one such bond. Until the bond matures, the government will pay certain amount each year.
In this way, the government ensured that public did not carry the burden of price rise and neither did OMCs suffer from unprofitable returns due to subsidies.
Criticism of oil bonds
Prime Minister Dr Manmohan Singh had agreed that issuing oil bonds was a way of shifting liability to the future generation.
This move would have given temporary respite but not improve state of economy. Future governments would have to abide by the commitments made by previous government.
A promissory note is a financial tool used by a party, promising another party to pay the debt on a particular day.