Govt bonds to meet rising oil payments

The finance ministry may issue government guaranteed marketable bonds under the borrowing programme to meet the burgeoning oil payments in the face of rising globalcrude oil prices.

The Reserve Bank of India had suggested this measure in recent meeting. Oil payments are increasingly becoming an issue with companies hitting their exposure limits with the banks.

This will be different from the oil bonds to be issued to the companies to meet the shortfall in procuring crude from the international market and marketing it at a subsidised rate back home.

Sources said the modalities for issuing the bonds were yet to be worked out but these bonds would not meet the immediate fund requirement of the companies as they had to be offloaded in the secondary corporate bond market to generate the required liquidity.

The RBI had also suggested further reduction of the excise duty for crude oil imports in order to lessen the burden on the oil companies.

The government is in favour of direct payment of foreign exchange for oil without involving the market and thus creating volatility.

This was done a year back to pay for oil and was shown in the RBI's balance sheet as prepayment of high-cost debt, sources said .

Floating of domestic bonds will be quite timely as the existing liquidity in the market is abundant, given the reverse repo levels of over Rs 50,000 crore. Reverse repo is the liquidity absorption mechanism of the RBI .

According to sources, even if it amounts to inflating the budgetary deficit, the foreign exchange position does not get disturbed to meet the oil payments.

A comfortable reserve position is a priority when the global oil prices are so uncertain.