Oil Bonds Explained: How India Battled Fuel Shocks

• Oil bonds are special government securities issued to OMCs (Indian Oil Corporation, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited) to compensate for losses from selling subsidized fuel.
• Used by the UPA government (FY2005-FY2010) to manage fiscal burden during record crude price surges, like $147.50 per barrel in 2008.
• They helped defer the fiscal impact, preventing immediate widening of the fiscal deficit.
• Repayments, including interest, are ongoing, constraining the current government's fiscal space; total payout projected at ₹2.6 lakh crore by 2026.
• Despite current global crude price spikes, retail fuel prices in India are unlikely to rise immediately, with OMCs expected to absorb the impact.