• Santosh D’Souza

Whenever fuel prices in India get to an unbearable threshold and criticism surfaces yet again, the BJP and its supporters claim that the exorbitant excise duties the Modi Government imposes on fuel are required to repay Oil Bonds issued by UPA in the period 2004-2010.

They need a scapegoat because the Modi government’s subversion of fuel price deregulation since 2014 is irrefutable. When global crude prices go up, India’s retail fuel prices go up. When global prices fall as they did several times since 2014, India’s retail fuel prices stay high. The Modi government introduces artificial mechanisms, higher excise duties for instance, and prevents low crude price benefits from reaching the citizen.

Were Oil Bonds a UPA government creation in the first place? Do UPA-era Oil Bonds in any way justify the additional money the Modi government extracted from Indian citizens through excise duty hikes? What might have forced the Modi government to impose extortionately high excise duties on fuel?

1. Who initiated the entire Oil Bonds policy?

The BJP and Vajpayee led NPA Government of 1999-2004 gave birth to Oil Bonds. Ram Naik, the Petroleum Minister in that government, spoke in Parliament and to the press several times in the 2000-2002 period on Oil Bonds. In September 2000 for example, Naik told the press that he would discuss petroleum pricing with the finance ministry, and crucially said:

“We have to tackle the situation with a mixture of three options - adjustment of taxes and duties, issue bonds to control oil pool deficit and increase prices.”

Over the next year, the petroleum and finance ministries worked out modalities. In December 2001, the Vajpayee government told the press that it will use Oil Bonds to eliminate the oil pool deficit that increased substantially after a surge in crude prices at the time.

In March 2002, the Vajpayee government told Parliament that Oil Bonds would be issued for 80% of the Oil Pool Deficit. Further, since subsidies would continue for some products, the CAG would conduct an audit of outstanding liabilities and the resulting final sum would also be financed through fresh oil bonds.

In April 2002, the Vajpayee government issued the first tranche of Oil Bonds for a sum of 9000 Crore INR. To summarize, the BJP’s Vajpayee government conceptualized Oil Bonds and issued them. Had the BJP/NDA won the 2004 elections, they would have continued to issue subsequent Oil Bonds. It was incidental that the UPA won instead and had to issue oil bonds under the policy created by the BJP.

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.

Were Oil Bonds the fiscally prudent mechanism to use? That debate is beyond the scope of this article - the fact remains that the BJP today, to distract from its artificially high fuel price policy, faults the UPA for a policy that the BJP itself created in 2002.

2. Does the quantum of Oil Bond interest and principal payments justify the Modi government’s massive fuel excise duty collections?

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 Modi government made against Oil Bonds since 2014 add up to around 83 Thousand Crore INR. This includes a projected amount of around 20000 Crore it will pay in FY22, the current financial year. 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 Modi Government made so far. It is glaringly obvious that Oil Bonds have nothing to do with why the Modi Government is keeping fuel prices artificially high.

3. Is there an alternate reason why the Modi government is forced to collect additional money from citizens?

The revenue shortfall caused by the bonanza the Modi government gave to Corporates might be offset by citizens paying additional excise duties on fuel.

The Modi 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 a few, the rate dropped by as much as 40%. Naturally, this caused a massive drop in the country’s income - corporate tax revenue dropped by 1 Lakh Crore INR, from 5.6 in FY20 to 4.6 lakh crore in FY21. Meanwhile, 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.

In other words, the Modi government gave India’s wealthiest - the owners of Companies - a huge bonanza by reducing corporate tax. It is balancing the resultant loss to India by collecting more excise from all Indians who pay for petrol and diesel.

Finally, it is pertinent to note that high fuel costs create a domino effect - fuel is an input for virtually all goods and services. As their costs rise, the Modi government gets a further revenue boost - GST collections increase too. Needless to say, the additional burden falls again on hapless citizens.