Rs 1.3 lakh crore oil bond burden limits scope for tax cut

The oil price spike during the global economic boom may be history but the Centre is still dealing with unpaid subsidy bills of over Rs 1.3 lakh crore dating back to a decade, leaving the Narendra Modi government little fiscal headroom to reduce tax on petrol and diesel.

The Atal Bihari Vajpayee government had ended subsidy on petrol and diesel in April 2002. But the UPA brought back the subsidy regime to keep pump prices artificially low under pressure from coalition partners,

The subsidy regime was implemented through a three-way burden-sharing mechanism. Under this scheme, the government bore one-third of the under-recovery on fuels through subsidy and the remaining part was split among state-run oil refiners such as IndianOil and BPCL and upstream companies such as ONGCNSE 2.40 %.

The UPA government finally freed up petrol pricing in June 2010 but continued the subsidy on diesel. As the subsidy bill continued to swell, it decided on a ‘graded’ increase to ..

A part of the subsidy liability was shifted for future by issuing oil bonds of over Rs 1.4 lakh crore, a part of which will mature in 2021 and continue through 2026. Of the total bonds, only three tranches adding up to Rs 11,500 crore have matured till 2015. Government sources said the bonds entail huge annual interest payout as the papers were issued at an average 8% interest rate.

Source : Economics Times

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