By Vipin Agnihotri
India, which imports around 70 per cent of its crude oil requirement, is faced with a not so unheard problem. According to sources, the PSU oil-marketing firms are losing about Rs 2 billion per day on retail sales.
In my opinion, the main reason behind this is that Indian government has not allowed them to increase prices in line with the increase in international crude oil prices. It is worth mentioning in this regard that the government had in place a three-pronged package, which has an impact on the price hike in petroleum products, meets its burden by present provisioning and alter the existing subsidy scheme to target the poor.
Indications are that despite the fact that the mismatches between domestic prices and global oil prices can’t be tackled with the issuance of oil bonds, the government will issue bonds worth Rs 300 billion to compensate PSU oil firms for their losses.
According to experts, in February last year the committee on Pricing and Taxation of Petroleum Products headed by Dr C Rangarajan said that the issuance of oil bonds raises some fiscal concerns. Point to be noted here is that the off-balance sheet exposure of Indian government is more than one per cent of its GDP and issuances of oil bonds are one of the biggest worry. Most of the experts feel that oil bonds will dent government finances badly, when they mature.
In addition, with the overall subsidy burden estimated to exceed Rs 1 trillion, issuing bonds to meet short-term objective is certainly not the way out and aligning them to international prices is the only alternative.
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