Oil Bonds' Fraud

Media, especially the printed media has been screaming for a long times that all our oil companies are making huge losses and can be forced to or compelled to shut down their business if not compensated by the government. No doubt oil companies are selling the petrol, diesel etc. At unviable prices as the international prices of the crude oil have climbed very high. So these company constantly keep on demanding the compensation from the government, and our Finance Minister keep on assuring them for the compensation. He has various ways which are rejected outright which are:



a. He can allow the oil companies to increase their prices to match the prices of cost of the products. Unfortunately this is more than likely to result in the defeat of his government in the next elections.



b. . He can remove all taxes and duties on the import, processing and sale of oil and its derivatives. However, this will reduce the government’s revenue and increase the fiscal deficit, which will show up in the National Budget. Moreover, some of the taxes are imposed by states and they may not agree to eliminate these.



c. He can print extra money and give it to the oil companies. This immediately increases the money supply and, as a consequence, reduces the value of money in our hands through inflation. This, too, is likely to result in the defeat of his government in the next elections.



d. He can ‘loan’ them the money, perhaps at zero interest rates, but this will skew their own balance sheets and is likely to have the same inflationary effect on the economy as printing new notes.



e. He can reduce the expenditure of the government under other heads and transfer the savings to the oil companies. Unfortunately, the expenditure under other heads has increased dramatically during his tenure. The salaries and perks of the Members of Parliament have gone up, the expenditure on VIP Security is out of control and so on. The sixth pay commission payout is imminent. It takes much more courage than the Prime Minister and Finance Minister have to wield the axe on the expenditure side and the political will to do so is lacking, too.



f. He can impose a fresh tax and pass on the proceeds to the Oil Companies. However, to meet the ballooning expenditure of his government, the Finance Minister has already imposed all taxes that he thinks the tax-payer can take without thinking about his vote in the next elections. Any more taxation may have a negative effect for his party in the next elections



None of the above ways of providing compensation and liquidity to the oil companies is acceptable to the Finance Minister or his Prime Minister. However, he is a clever person and knows his way around the back alleys of economics. “Aha”, he thinks. “I have done this ten years back and can do so again. I can assist the oil companies and make others pay for the sins of our government and none will be the wiser. It helps that these others being asked to pay are infants now and they cannot object to this expenditure being loaded on them when they start earning. By the time they are old enough to vote, who knows where I will be.” Accordingly, he gives the following directive:



Print some paper marked “Oil Bonds” and give this to the long-suffering Oil Marketing Companies. We can promise to pay, say, 7.5% interest on these Oil Bonds. If this interest is not adequate for them to tide over their liquidity problems, they can borrow against these bonds or sell them in the open market or even sell them back to the Reserve Bank of India . These Oil Bonds are extra-Budget and will not show up in the Government’s accounts. In any case our government is not obliged to publish a balance sheet.”…..wow …..our Finance Minister is a genius undoubtedly.





“The Bonds will mature at some future time, say, 25 years from now. Who knows who will be in Power then, and, whoever it is can issue more bonds to cover these bonds and postpone the problem another 25 years.”





Hence, Oil companies are partly compensated for their losses at virtually no risk to his government.



Once again I am using the prophecy of Thomas Jefferson, he said :



“It is a wise rule never to borrow a dollar without laying a tax at the same instant for paying the interest annually and the principal within a given term. ….We shall consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves.



The earth belongs to the living, not the dead…We may consider each generation as a distinct nation with a right to bind…themselves, but not the succeeding generation.



The modern theory of perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.”



Unfortunately our Fm or PM haven’t listened to him, as a result, your children and mine will have to redeem these Oil Bonds much after most members in the present government have retired from the government and, some, perhaps from this earthly existence. We have burdened our next generation without their consent, so that our present government does not pay the price of its profligacy. It is as if the Finance Minister has committed financial murder and has blamed it on our children and their children, so that the punishment visits them instead of his Party. This is very cynical and downright unethical.



The common man must be made aware of this for the sums involved are not a pittance. – The total oil bonds issued till 2007-08 were worth Rs. 66,967 Crores. Then in 2008-09, the Finance Minister issued another Rs 94,000 crore or so worth of Oil Bonds. This is almost equal to the Central Government’s entire non-tax revenue for the year and it comes to a whopping 1.8% of India ’s GDP.



In addition to the Oil Bonds given to the Oil Marketing companies as subsidy, the fertilizer companies are also given such bonds. One wonders what is next – perhaps the government will issue Sixth Pay Commission Bonds. In an election year, anything is possible, especially as our leaders appear to be head and shoulders below a statesman like Thomas Jefferson. This is India ’s tragedy and our coming generations will pay for the venality of our leaders and for our shortsightedness in continuing to elect them.