While scrolling through my google news feed, I came across this news article titled ‘Why govt is not cutting petrol, diesel prices; Rs 1.3 lakh cr oil bond repayments due for cheap fuel in past’ in the website of Financial Express, one of India’s leading business media entity. Being such a large and renowned media organization, I didn’t hope they would write this article. It is basically a report on how the increasing tax on petrol and diesel is because of the oil bonds issued by previous governments which we have to pay now. This, as we shall see later, is totally wrong and belongs more to whatsapp university instead of Financial Express.
Let’s look at the argument first. The previous UPA government and the Vajpayee government before that issued oil bonds to Oil Marketing Companies. This was because they asked them to sell Petrol and Diesel at a lower price against which they would be compensated by them through these bonds. What does this mean? It basically means those oil companies would be given bonds in return of the losses incurred by them by selling oil at a lower price than its actual cost. A bond is an assurance by the government to pay certain amount in future, when the bond will get matured, along with the interest. It has a face value which is the actual cost to be compensated and an interest over that value which will be paid annually. This means that the bonds issued by the previous governments is to be paid by the current government. And just because of this the tax on petrol and diesel has risen substantially. As the Financial Express report says,
“[T]he government is ostensibly using this tax to mop up money for payment of dues towards redemption of oil bonds worth over a lakh crore rupees.”
Now in 2014-15, two oil bonds matured which brought down the total outstanding oil bonds from ₹1,34,000 crore to ₹1,30,000 crore (approx. values). According to Union Budget 2021, the outstanding oil bonds stood at ₹1,30,000 crore. Yes, this is not a typo, but the amount has not changed since then. The government has not paid for the oil bonds since 2015. Of course, the government has to pay annual interest on it, and that amounts to ₹10,000 crore per year. What is this year’s scenario? Vivek Kaul writes,
“[I]n total, the government needs Rs 19,500 crore to repay oil bonds as well as pay interest on them during 2021-22. When it comes to government finances, this is small change.”
(kindly click here to read his piece to get into the maths of ₹19,500 crore, although Mr. Piyush Goyal would advise you not to.)
Now let’s look at the excise duty on petrol and diesel earned by the central government in all these years.
The above graph shows us that the Central Government earned around a lakh crore rupees through taxes in the year 2014-15 which swelled up to around 370 lakh crore rupees in 2020-21. This graph alone busts the theory of oil bonds. The expenditure on bonds is not even a fraction of the taxes central government is earning through Petrol and Diesel.
So then what is the reason of increased taxation?
The above picture shows us the revenue earned by government through different types of taxes between 2018-19 and 2020-21. One can see how revenue from corporate tax decreased from ₹6.63 trillion in 2018-19 to ₹4.57 in 2020-21. It was because of the corporate tax cut in 2019. Similarly, GST collections also saw a similar downfall, reducing from ₹5.99 trillion in 2019-20 to ₹5.48 trillion. This has forced the government to increase the customs and the excise duty. The current dispensation, who once believed in abolishing income taxes, will probably not give any income tax reliefs in the near future as was promised in their manifesto, all because of their mishandling of the economy which started way before the pandemic.
To conclude, the clickbait news headlines may get you some views, but would decrease your credibility. The facts in the report are all correct but the interpretation is all wrong. Clearly, the hard time for Indian journalism continues.