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What is Oil Bond ?

  • Integrity Education, Delhi
  • 17, Aug 2021
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  • Oil bonds are issued by the government to compensate oil marketing companies (OMCs), fertilizer companies and the Food Corporation of India (FCI) for losses borne by them in the process of regulating prices in the domestic market. It was introduced in 2005 to defer the payment of money to the oil marketing companies
  • They are akin to government securities. These usually have a long maturity period extending over 15-20 years. Interest payments will be due at fixed intervals during the tenure of the bond.

Why do governments issue such bonds?

  • Compensation to companies through issuance of such bonds is typically used when the government is trying to delay the fiscal burden of such a payout to future years.
  • These types of bonds are considered to be ‘below the line’ expenditure in the Union budget and do not have a bearing on that year’s fiscal deficit