Oil bonds maturing in March to increase fiscal deficit

The first batch of oil bonds issued in March 2002 are set to expire this financial year, as a result of which the government is likely to take an additional hit of around Rs 14,300 crore.

The bonds, Rs 9,400 crore of which were issued in March 2002 and Rs 2,000 crore in two tranches in March 2006, are likely to increase the fiscal deficit for 2008-09, estimated at 2.5 per cent of GDP, by around 30 basis points. The fiscal deficit for 2008-09 is estimated at Rs 1,33,287 crore.

"The Budget was silent on the outgo due to the oil bonds that mature in March 2009 even as the finance minister said that the liabilities due to oil, food and fertiliser bonds needed to be brought into fiscal accounting," said an industry expert with an advisory firm.

The government has issued oil bonds worth about Rs 67,000 crore in 10 tranches to its oil marketing companies since March 2002. The first batch, issued in March 2002, had an interest rate of 6.96 per cent, while oil bonds worth Rs 9,076 crore issued on March 28 have an interest rate of 8.40 per cent. These will mature in 2025. 
 

OIL BONDS ISSUED SO FAR
Date	Amount  (in Rs crore)	Interest  rate  (%)	Maturity
Mar 28, 08	9,076.41	8.40	2025
Jan 18, 08	11,256.92	7.95	2025
Mar 29, 07	4,971	8.40	2026
Feb 12, 07	5,000	8.20	2024
Nov 28, 06	5,000	7.75	2021
Oct 16	5,000	8.13	2021
Mar 24, 06	2,000	7.07	2009
	2,000	7.44	2012
	1,750	7.59	2015
Mar 7, 06	2,000	7.33	2009
	2,000	7.47	2012
	1,750	7.61	2015
Sept 9, 05	5,762.85	7.00	2012
Mar 20, 02	9,400	6.96	2009
Source: Press Information Bureau releases

The government compensates oil, fertiliser and food companies by issuing them bonds. These bonds are not accounted for while calculating the fiscal deficit. However, the Budget documents this year mentioned the oil bonds issued during 2008-09, bringing some degree of transparency in accounting.

Oil bonds worth around Rs 41,000 crore are expected to be issued to the oil marketing companies "" Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) "" for the losses incurred in 2007-08.

These bonds, which are issued to partly compensate oil marketing companies for selling petrol, diesel, LPG and kerosene at subsidised prices, are primarily bought by Life Insurance Corporation of India (LIC), usually at a discount.