How has de-regulation of oil prices impacted consumers?

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admin November 4, 2021
Updated 2021/11/05 at 6:16 AM

The Centre has claimed that it cannot lower petrol and diesel taxes because it must shoulder the cost of payments in lieu of oil bonds issued by the previous UPA administration to subsidise fuel prices. Prior to deregulation, petrol and diesel, as well as cooking gas and kerosene, were all offered at subsidised prices. The government would step in to set the price at which merchants may sell diesel or petrol. As a result, oil marketing businesses had under-recoveries, which the government had to make up for. In order to reduce the fiscal deficit, the government sold oil bonds of Rs 1.34 lakh crore to state-fuel merchants instead of giving direct subsidies to oil marketing firms from the budget.

About oil bonds

Oil bonds are special securities issued by the government in place of financial subsidies to oil marketing corporations. Oil firms get paid interest on these bonds, which are generally for a lengthy period of time, such as 15-20 years. According to budget papers, such bonds will be redeemable between 2021 and 2026.

Why do governments issue bonds like this?

Companies are generally compensated through the issuing of such bonds when the government is attempting to defer the budgetary burden of such a payout to future years. Governments use these tools when they are in risk of exceeding their fiscal deficit objective owing to unanticipated circumstances that result in a drop in income or an increase in spending. These bonds are classified as “below the line” spending in the Union budget since they do not affect the fiscal deficit for that year, but they do increase the government’s overall debt. Interest payments and bond repayments, on the other hand, will be factored into future fiscal deficit estimates.

What was the rationale for deregulating oil prices, and how has this affected consumers?

The government gradually deregulated fuel pricing, releasing rates for aviation turbine fuel in 2002, petrol in 2010, and diesel in 2014. The prices were deregulated to make them market-linked, allowing customers to benefit from cheaper rates when global crude oil prices fall. Price decontrol effectively allows petrol merchants like Indian Oil, HPCL, and BPCL to set prices based on their own cost and profit estimates. The government, on the other hand, is the primary beneficiary of this price decontrol policy change.

Aside from oil bonds, the UPA period witnessed the issue of fertiliser bonds beginning in 2007 to compensate fertiliser producers for losses caused by a mismatch in cost and selling price. The NDA government has issued bank recapitalisation bonds to particular public sector banks (PSBs) over the years in order to fulfil these PSBs’ significant capital requirements without using budget funds. Over the three years from 2017 to 2018, the government has invested more than Rs 2.5 lakh crore in recapitalisation bonds into banks and paid interest of more over Rs 20,000 crore.

Has the deregulation of oil prices benefited consumers?

While oil price deregulation was supposed to be tied to worldwide crude prices, Indian consumers haven’t profited from lower global prices since the central and state governments have imposed new taxes and levies to generate additional income. This requires the customer to pay either the same amount as before or even more

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