Are UPA-era oil bonds the reason for high excise duty on petrol, diesel?

To put the matter in perspective, the UPA government in 2009-10 made an interest payment of Rs 10,000 crore on account of oil bonds. Till 2013-2014, they had accounted for over Rs 50,000 crore of interest payments against oil bonds. Hence, for the government to now claim that they have been paying Rs 10,000 crore annual interest since 2014-15 total to Rs 70,000 crore till 2020-21 doesn’t hold water, especially since the government has made a killing from taxes on petroleum products.

The beauty of these revenues is that the Centre is keeping maximum revenues to itself by way of road cess and additional duties which are not sharable with states. For instance, road cess mop up alone was Rs 2.25 lakh crore against the original budget aim of Rs 1.25 lakh crore in FY21. While additional excise collections were pegged at Rs 74,000 crore. Only basic excise duties are sharable with states and their share was approximately a mere Rs 20,000 crore. The rest was retained by the Centre.

Even this year while the fuel excise target is lower at Rs 3.19 lakh crore, the government is still aiming at Rs 2 lakh crore from road cess alone which is not sharable with the states. While states’ share from the basic excise revenue is again estimated at Rs 20,500 crore according to the FY22 Budget.

This was not the case in 2013-2014. Despite crude oil hovering at $99 a barrel, the government at that time budgeted Rs 1.60 lakh crore from excise duties, out of which, approximately Rs 40,000 crore was shareable with states. Today, when crude oil is hovering around $65-68 a barrel, the government has raked in Rs 3.89 lakh crore and the states are getting a minuscule share of that.

Plus, the size of the GDP for 2013-2014 was estimated at Rs 113  lakh crores, a far cry from today’s Rs 228 lakh crore, despite the disruption caused by COVID-19. Similarly, the budget size in 2013-2014 was estimated at Rs 14 lakh crore, while for this fiscal it is estimated at Rs 34.83 lakh crores, more than double that.

On a budget size of close to Rs 35 lakh crore, oil bonds worth Rs 1.30 lakh crores are not even 4 percent as a proportion, while in 2013-2014, 9.2 percent of the expenditure budget was eaten up by the bonds.  More importantly, by the time major tranches of the bonds come up for repayment in FY24 to FY26, the budget size and the size of the economy will be much larger.

If oil bond payments are a burden, then what about the almost Rs 55,000 crore of interest the government is paying till FY22 for recapitalisation bonds of over Rs 3 lakh crore given to public sector banks, in lieu of cash infusion.

What about the Rs 1.10 lakh crore of GST compensation given to states via market loans with bond maturities of 3-5 year years? The GST cess stands extended just for the repayment of these market loans, even if it is not impacting the Centre’s balance sheet directly.

Clearly, the government’s argument does not hold water and is also too late in the day.