• Dr. M. Veerappa Moily

During UPA regime, petrol and diesel as well as cooking gas and kerosene were sold at subsidised rates. Instead of paying direct subsidy to oil marketing companies from the budget, the then UPA government issued oil bonds totalling Rs. 1.34 lakh crore to the state-fuel retailers in a bid to contain the fiscal deficit. But consumers have not been benefited from a fall in global prices in the current NDA regime, as the centre as well as state governments impose fresh taxes and levies to raise extra revenues.

The NDA government contention is that it cannot reduce taxes on petrol and diesel as it has to bear the burden of payments in lieu of oil bonds issued by the previous UPA government to subsidise fuel prices. 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 crores 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 Vajpayee government’s regime in 2002. On March 30, 2002, Ram Naik, the then Union Petroleum Minister said that the bonds worth Rs. 9,000 crores were issued by the Reserve Bank of India (RBI) to liquidate 80% of the oil pool deficit. In its second term, the UPA government paid a total of Rs. 53,163 crores in interest for oil bonds in the five-year period between 2009-10 and 2013-14.

The interest on oil bonds paid in the last seven years totalled Rs. 70,195.72 crores. Of the Rs. 1.34 lakh crore worth of oil bonds, only Rs. 3,500 crore principal has been paid and the remaining Rs.1.3 lakh crore is due for repayment between this fiscal and 2025-26.

The government has to repay Rs. 10,000 crores in the current fiscal year, another Rs. 31,150 crores in 2023-24, Rs. 52,860 crores in 2024-25, and Rs. 36,913 crores in 2025-26. But this is less than one-tenth of the excise duty on petroleum products at Rs. 3.45 lakh crore, a major portion of which accrues to the Centre.

The Centre’s revenue from taxes on crude oil and petroleum products jumped 45.6% in 2020-21 to Rs. 4.18 lakh crore. Excise duty on petroleum products jumped over 74% year-on-year to Rs. 3.45 lakh crore in 2020-21, according to data furnished by the government of India.

The Centre’s share in taxes on petroleum products has progressively increased from Rs. 2.73 lakh crore in 2016-17 to Rs. 2.87 lakh crore in 2019-20. On the other hand, the share of states in taxes on crude oil and petroleum products decreased 1.6% to Rs. 2.17 lakh crore in 2020-21 from Rs. 2.20 lakh crore in 2019-20.

The Centre and a number of states have significantly increased duties on petrol and diesel as a way to boost revenues in view of the Covid-induced restrictions that curtailed economic activity. State and central levies account for about 55.4% of the retail price of petrol and 50% of the price of diesel in Delhi.

Central levies alone account for about 32.3% of the retail price of petrol and 35.4% of the pump price of diesel in Delhi. The Centre hiked the excise duty on petrol to Rs. 32.98 per litre in May 2020 from Rs. 19.98 per litre, and on diesel to Rs. 31.83 from Rs. 15.83.

Fuel prices have increased steadily over the last one year. The country has already seen 21.7% increase in the prices of petrol and diesel since the beginning of the year. Petrol is currently retailing at Rs. 101.8 per litre in Delhi and diesel at Rs. 89.87 per litre.

The price of petrol has been increased 39 times while that of diesel has been increased 36 times. In 2020-21, the price of petrol was hiked 76 times.

In 2014-15, when the NDA government came to power, the central excise duty collected was Rs. 29,279 crores on petrol and Rs. 42,881 crores from diesel. Between April 2020 and January 2021, Rs. 89,575 crores had been collected as excise duty on petrol and Rs. 2,04,906 crores on diesel. This is more than 400% increase.

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 they have 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 expenditure,” Vivek Kaul, economic commentator, has told Fact Checker.

India levies one of the highest taxes on petrol and diesel in the world. Petrol and diesel do not form part of the Goods and Services Tax (GST) but attracts excise duties from the Centre and the value-added tax from states that make them one of the highest-taxed commodities in the country.

While the decision of the United Progressive Alliance was to reduce imports and go for indigenous production and make India self-sufficient in oil and gas exploration by 2030, the present government has not invested in oil and gas exploration since 2014.

The taxation policy of the present regime is totally flawed, illegal and the frequent hike in prices of petrol and diesel has contributed to the distress and sufferings of the people during the present Covid pandemic and it also created distress in trade and commerce.

When inflation is galloping, job losses are rampant and businesses are collapsing, the taxation and the cruel hikes in fuel prices are destroying the economy of the nation. It is the duty of the central government to have checks and balances on the fuel prices.

When global crude oil prices shot up drastically in the years following the US invasion of Iraq, the UPA government headed by Dr. Manmohan Singh took a decision not to increase retail petrol and diesel prices correspondingly. Prices had hit an all-time high of $147 in the summer of 2008—compared to around $69.35 presently.

Instead of compensating the oil marketing companies who had to pay high international prices to import oil into India through subsidies, that would have breached the budget’s fiscal deficit target, it smartly settled on oil bonds, which would not have shown as budgetary expenditure.

Between 2005 and 2010, oil bonds worth Rs. 1.4 lakh crores were issued, helping to keep petrol and diesel prices in India steady and way below international prices. It may have staved off a fiscal deficit and the political fallouts of high fuel prices, but now they have become handy weapons for the present government to defend its case.

This is not the first time that the BJP has been pooping up the oil bonds issue. In September 2018 too, when the retail price of petrol and diesel were higher than global oil prices, the NDA government and leaders had given a similar explanation that the high prices are due to the interest payment and maturity repayment of the oil bonds imposed on them by the previous UPA regime nay fooling the public.

In April 2002, the Vajpayee government issued the first tranche of Oil Bonds for a sum of 9000 Crore INR. The NDA government adopted a strategy to inject capital into state-owned banks and other institutions by issuing recapitalisation bonds worth Rs. 3.1 lakh crores, which will come up for redemption between 2028 and 2035.

Over the years, the Modi government has issued bank recapitalisation bonds to specific public sector banks (PSBs) as it looked to meet the large capital requirements of these PSBs without allocating money from the budget.

The NDA government also used the National Small Savings Fund (NSSF) to finance its food subsidy outside the budget. Beginning 2016-17 and till March 2021, the Food Corporation of India borrowed from NSSF to finance the food subsidy. Fuel prices have a cascading effect on the prices of many other commodities, which include essential items like food, medicines and other FMCG goods. An increase in fuel rates triggers a sharp rise in inflation and prices of several essential goods and services go up simultaneously.

While vehicle owners have been forced to reduce their fuel consumption, people from poorer sections of society are finding it hard to even buy daily groceries — all because of higher fuel prices. Transport sectors are hit hard apart from farmers who suffer because of hike in diesel prices.

During 2004-14, the UPA government paid interest and principal, without repeatedly blaming the BJP for creating oil bonds or trying to hike excise duties to help pay. Quite the reverse: the UPA government crucially held petrol and diesel prices steady in 2007-09, despite soaring global crude prices. This was a vital component in the strategy that helped Indians emerge from the global 2008 financial crisis virtually unscathed.

The money needed to service the Oil Bonds is a fraction of the excise duty revenue that the Modi government extracted from citizens.

The total payments the NDA government made against Oil Bonds since 2014 add up to around eighty thousand crores. This includes a projected amount of around 20000 crores it will pay in FY22. The total fuel excise duty it has earned since 2014, including FY22 projections, is more than 19 Lakh crore INR (2290% more)! The fuel excise collected in just one year, FY21, is 3.71 Lakh Crore INR. This is 588% more than all the Oil Bond payments the NDA Government made so far. The revenue shortfall caused by the bonanza the NDA government gave to corporates might be offset by citizens paying additional excise duties on fuel.

The NDA government’s biggest tax-related decision was in September 2019, when it slashed corporate tax rates significantly. Most corporates saw their tax rates fall by 27%. For some, the rate dropped by as much as 40%. This has resulted in a massive drop in the country’s income from corporate tax. Revenue dropped from 5.6 lakh crore in FY20 to 4.6 lakh crore in FY21. According to Ministry of Finance’s budget documents, excise duty revenue jumped from 2.4 lakh crore in FY20 to 3.9 lakh crore in FY21. Almost the entire increase is due to increase in fuel excise duties, and it neatly offsets the drop in corporate tax revenues. This gave the corporates a huge bonanza leaving the Indian public to pay high fuel prices for petrol and diesel.

India has an existing strategic storage capacity of 5.33 million tonnes despite being the third largest consumer in the world —Visakhapatnam (1.33 mt), Mangaluru (1.5 mt) and Padur (2.5 mt), built with an investment of $600 million in the first phase during UPA-1 and II which could support 10 days of net imports. Indian refiners maintain a 65-days of storage which sums up to 75 days of oil reserves.

Taking into account the oil security concerns of India, the UPA II in 2013, had decided to augment the Strategic Crude Oil Storage in the country, and planned for an additional crude oil storage facility and entrusted Indian Strategic Petroleum Reserves Limited (ISPRL) with the responsibility of preparation of Detailed Feasibility Reports (DFRs) for 12.5 MMT of Strategic Storage of Crude oil in Phase-II in four States. The locations chosen are Bikaner in Rajasthan, Chandikhol in Odisha, Rajkot in Gujarat and Padur-II in Karnataka. The DFR’s had been prepared by Engineers India Limited (EIL) with capacities proposed as Chandikhol 3.75 MMT, Rajkot 2.5 MMT, Bikaner 3.75 MMT and Padur 2.5 MMT.

The NDA government has just woken up to the reality and has planned to take forward the UPA strategy, for an additional 6.5 metric tonne storage at Chandikhol (4 mt) in Odisha and Padur (2.5 mt) in Karnataka (As evidenced in the Annual Report of ISPRL 2012-13). The planned second phase with an investment of $1.6 billion will add another 12 days of crude storage once operational will take the total storage capacity to 86 days of Indian Strategic Petroleum Reserves (ISPR). India’s current refining capacity stands at 249 MMTPA, comprising of its 23 refineries - 18 under Public Sector, 3 under private sector and 2 in a joint venture. Indian Oil Corporation (IOC) is the largest domestic refiner with a capacity of 80.7 MMTPA. Top three companies – IOC, Bharat Petroleum Corporation (BPCL) and Reliance Industries (RIL) - contribute around 66.7% of India’s total refining production from FY 2018 – 19.

The UPA I and UPA II had also taken effective steps to double the refining capacity of Paradep Refinery and also to increase the refining capacity at MRPL in Mangalore, Cochin Refinery and other refineries in the country. A Rs. 42,000 crore Barmer Refinery cum Petrochemical Complex in Rajasthan was initiated in 2013, to take advantage of the crude availability in the region and to generate employment opportunities to the locals. The project was abolished by the NDA government. It is only recently that they have planned to revive the project. The NDA government neither took forward the UPA agenda nor did they introduce any new capacity in the refinery.

Even after 7 years, there has been a gross criminal neglect on the part of the present government either to put up new refineries or setup more strategic storage facilities in the public sector or even in the private sector. The NDA government has lost the greatest opportunity of storing strategic reserves which is now available at the lowest international prices. The laxity on the part of the NDA to preserve the integrity of oil reserves is a national tragedy.

The writer is former Union Minister for Petroleum and Natural Gas.