Prime Minister Narendra Modi cornered the UPA government by raising the issue of oil bonds in TV 9 Network’s What India Thinks Today Summit-2026. The PM clearly said that in exchange for oil bonds worth Rs 1.48 lakh crore of the UPA government, his government paid more than Rs 3 lakh crore. The PM said that his government has done the work of washing away the sins of the Congress government. You might not have even heard of such expensive laundry.
Let us know with this excuse that what is an oil bond? How does this work? Why does it have to be issued? How and why did the government have to pay more than Rs 3 lakh crore instead of Rs 1.48 lakh crore?
What is oil bond?
Oil bonds are a type of government debt. It is issued by the government itself. Its purpose is to repay the dues of oil companies. When the government wants to keep the prices of petrol, diesel or LPG low, then it does not pay the full amount to the oil companies. Companies buy expensive oil from the market, but the government tells them to sell it cheaper to the public. This causes loss to companies. The government does not provide cash to compensate for this loss. She gives him oil bonds in his place. In a way it is like a credit note.
Oil bond is a type of credit note. Photo: Unsplash
Why are oil bonds issued?
Many times the government does not increase fuel prices due to electoral or social reasons. Oil prices increase in the international market. But prices in the country are kept stable. Oil companies suffer losses due to this. This is called under-recovery. This means selling at a price below cost. The government does not have immediate cash or does not want to increase the budget deficit. Then it issues oil bonds. This does not appear to be an immediate burden on the government, but payments have to be made in the future.
How do oil bonds work?
The government issues bonds of a fixed amount. This bond is given to oil companies. It is written in it that the government will pay the money in future. Will also pay interest on it. Interest has to be paid every year. The bond has a fixed tenure. Like 10 years, 15 years or 20 years. On completion of the period, the government returns the original amount. In this way, companies do not get cash immediately, but they have a government guaranteed paper. If they want, they can also sell it in the market.
What is the effect of oil bonds?
The first effect is that the deficit appears less in the budget. The government does not show immediate expenditure. This makes the financial figures look better, but does not eliminate the real burden. He goes into the future. The incoming governments have to pay. Interest also has to be paid. This increases the total amount. Many times political disputes also arise from here.
Instead of UPA government’s Rs 1.48 lakh crore for oil bonds, Modi government paid Rs 3 lakh crore.
paid three lakh crore rupees
In fact, between 2005 and 2010, the central government had issued a large amount of oil bonds. Their total principal amount was approximately Rs 1.48 lakh crore. This amount was given to compensate the losses of the oil companies. The government did not pay in cash. Bonds were issued instead. The interest rate on these bonds was fixed. The government kept paying interest every year. Gradually this amount increased. When the tenure of these bonds was completed, the principal amount also had to be repaid. The original amount was Rs 1.48 lakh crore, but including interest the total payment had to be more than Rs 3 lakh crore. From here the question arises that why did more than Rs 3 lakh crore have to be paid instead of Rs 1.48 lakh crore?
Why was there a higher payment?
The reason for this is interest. Interest has to be paid every year on the bond. Suppose the interest on a bond is 8 percent. So interest will keep getting added on it every year. If the tenure is longer, the total interest will also be higher. Many oil bonds had a tenure of 15 to 20 years. Had to pay interest for so long. This increased the total burden. The original amount was Rs 1.48 lakh crore, but after adding interest the amount reached almost double. Therefore the total payment exceeded Rs 3 lakh crore.
So were oil bonds wrong?
There are differences of opinion on this. Some people say that oil prices were very high at that time. If the prices were increased, it would have been a burden on the public. Inflation was rising, hence oil bonds were necessary. On the other hand, some people say that the real expenditure was hidden through this. Budget deficit was shown less. The burden was placed on the future i.e. immediate relief was given but payment had to be made later.
The issue of oil bonds often arises in politics. Photo: Unsplash
Oil bonds and budget deficit
When the government spends more and the income is less, the budget deficit increases. The government tries to keep the deficit under control. If the government had given cash directly to the oil companies, the losses would have increased immediately. But by issuing bonds, this expenditure is not directly reflected in the budget. This makes the financial position look better, but the real liability remains.
Are oil bonds still issued today?
In later years the government stopped issuing oil bonds. A policy of fixing oil prices according to the market was adopted. Now the prices are linked to the international market. This reduces losses, but prices keep going up and down.
How is the public affected?
When prices are kept artificially low, the public gets relief. But the government has to take loan. When prices are fixed according to the market, sometimes one has to pay more, but the hidden debt of the government does not increase. Both methods have their advantages and disadvantages.
Then why do political disputes occur?
The issue of oil bonds often arises in politics. One side says that the previous government waived off the debt. The other side says that the public was given relief at that time. The truth is that oil bonds were a financial instrument. It was used in special circumstances, but in the long run its burden increased.
In simple words, oil bond is a government loan. This is given to compensate for the losses of oil companies. Due to this, immediate cash payment does not have to be made, but the principal amount and interest have to be paid in future. Interest was paid on the principal amount of Rs 1.48 lakh crore for years. Then the principal amount. In this way the total payment exceeded Rs 3 lakh crore. Oil bonds were neither completely right nor completely wrong. They were the result of the economic and political situation of that time. There may be many decisions of the present government which may be put in the dock by the incoming government of another party.
Also read: How many KM highways are being built in a day? PM Modi explained the difference in WITT