These bonds will dent government finances when they mature...
India, which imports nearly 70% of its crude oil requirement, is faced with a not so unheard problem; the PSU oil marketing firms are losing about Rs.2 billion per day on retail sales. Reason being, the government has not allowed them to raise prices in line with the increase in international crude oil prices.
The government had in place a three pronged
package – affect a price hike in petroleum products, meet its burden by current provisioning and modify the existing subsidy scheme to target the poor. Yet, 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. Exactly 21 months ago, in February 2006; the Committee on Pricing & Taxation of Petroleum Products headed by Dr. C. Rangarajan said that the issuance of oil bonds raises some fiscal concerns. “The off-balance sheet exposure of Indian government is more than 1% of its GDP and issuances of oil bonds are one of the biggest worry. Oil bonds will dent government finances badly, when they mature,” says Sachidanand Shukla, Economist, Enam. 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 solution.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
India, which imports nearly 70% of its crude oil requirement, is faced with a not so unheard problem; the PSU oil marketing firms are losing about Rs.2 billion per day on retail sales. Reason being, the government has not allowed them to raise prices in line with the increase in international crude oil prices.
The government had in place a three pronged
package – affect a price hike in petroleum products, meet its burden by current provisioning and modify the existing subsidy scheme to target the poor. Yet, 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. Exactly 21 months ago, in February 2006; the Committee on Pricing & Taxation of Petroleum Products headed by Dr. C. Rangarajan said that the issuance of oil bonds raises some fiscal concerns. “The off-balance sheet exposure of Indian government is more than 1% of its GDP and issuances of oil bonds are one of the biggest worry. Oil bonds will dent government finances badly, when they mature,” says Sachidanand Shukla, Economist, Enam. 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 solution.For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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