Introduction

Prime Minister Narendra Modi promised to make petrol cheaper for common Indians, but the promise has not been fully realized. This article explores the role of taxes and oil bonds in the pricing of fuel in India and why the government's efforts to lower prices have faltered.

The Current Context of Fuel Prices in India

With the cost of fuel continuously on the rise, the Indian government is facing increasing pressure to lower the taxes on fuel. This hike in costs has put a significant burden on the wallets of the common people, forcing a reassessment of the government's commitment to making fuel more affordable.

Government's Justification for High Fuel Taxes

One of the main reasons cited by the Modi government for the high incidence of taxes on fuel is the existence of oil bonds issued by the previous United Progressive Alliance (UPA) government. When the oil marketing companies incurred substantial losses due to the difference in international market prices and domestic retail prices, the UPA government chose to issue oil bonds rather than directly subsidizing the companies.

What are Oil Bonds?

Oil bonds are securities issued by the government to compensate oil marketing companies for the ‘under-recovery’ they faced. These bonds carry a long-term tenure, typically around 15-20 years, and provide the companies with interest payments.

Why Do Governments Issue Oil Bonds?

Issuing oil bonds is a financial strategy used by governments to avoid immediate fiscal responsibility. These bonds are considered 'below-the-line' expenditures in the Union budget, thereby not including the fiscal deficit for the current year but adding to the long-term debt. However, the interest and repayment of these bonds contribute to the fiscal deficit in future years.

The Current Fuel Price Scenario

Currently, both the central and state governments impose taxes on fuel, which have contributed to the rising prices. The government aims to address the shortfall in Goods and Services Tax (GST) due to the economic lockdown last year, which was necessary to save lives. However, they are now compensating for this shortfall by providing subsidies for electric vehicles, an alternative that offers a viable solution to high fuel costs.

Electric Vehicles as an Alternative

Electric scooters, like the ones being launched by Ola, are a promising alternative to traditional fuel vehicles. The Ola Electric Ola Scooter is expected to launch in 2021 and is anticipated to offer both affordability and environmental benefits. With estimated prices and impressive specs, these electric scooters are poised to change the face of urban transportation in India.

Conclusion

While the government's intentions may have been noble, the complexities of fiscal management mean that promises to lower fuel prices are not as straightforward as they might appear. The role of oil bonds and the inherent challenges in fiscal management highlight the need for innovative and sustainable solutions, such as increased investment in electric vehicles, to address the issue of high fuel prices.