January 22, 2026

High Fuel Prices: Oil Bonds Are Not The Main Villain

By Sunil Garodia
First publised on 2021-08-20 01:08:50

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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

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Finance Minister Nirmala Sitharaman recently said that the NDA government was unable to reduce Central taxes on fuel to bring down their price as it was burdened by servicing the oil bonds (OB) issued by the UPA government in the past. She made it look as if the entire or a major part of the taxes collected by the Centre on fuel was spent for the purpose of servicing those OBs. But that is not correct.

The Centre collected Rs 3.71 lakh crore from fuel taxes in FY21. By her own admission, the government has to pay only Rs 1.3 lakh crore principal outstanding on the OB, along with separate interest, in installments by 2025-26. The government has to repay Rs 10,000 crore this year, Rs 31,150 crore in 2023-24, Rs 52,860 crore in 2024-25, and Rs 36,913 crore in 2025-26. The interest burden was, on an average Rs 10000cr every year for the last seven years and this will reduce progressively as the principal is paid back. Hence, in no year till 2025-26 will the government have to pay more than Rs 60000cr as principal and interest together. Then how is servicing of OBs the main cause of high fuel prices?

The fact is that the Centre had temporarily raised excise duty on fuel in 2020 to part finance the additional financial burden placed on it due to the pandemic. Since then, it has made it permanent, lured by the excellent collections that has eased financial pressure and the fact that it has not led to runaway inflation. But this has led to sky high fuel prices and growing discontent among the people. The excuse of servicing OBs will not do. There is immense scope to roll back the excise duty and ease the burden. But the government is unwilling to let go of a golden goose.