Cabinet clears petro bonds

NEW DELHI, JAN 20: The Union cabinet has paved the way for issuance of oil bonds and recapitalisation of three public sector banks by decidi...

NEW DELHI, JAN 20: The Union cabinet has paved the way for issuance of oil bonds and recapitalisation of three public sector banks by deciding to increase the corpus of the Contingency Fund from Rs 14,700 crore to Rs 32,490 crore.

The cabinet has recommended to the President the promulgation of an ordinance to help the government to meet the additional requirement to the extent of Rs 15,090 crore for oil bonds and Rs 2,700 crore for recapitalisation of the banks. These adjustments are of technical nature and will not have a bearing on the fiscal deficit of the government.

However, the issuance of oil bonds will help the Indian Oil Corporation IOC to shore up its balance sheet and secure a better price in the GDR market. The IOC is slated for disinvestment in the current financial year.The cabinet, in its meeting on Tuesday, has also decided to restore 5 per cent cut in Plan expenditure following success of the VDIS which fetched Rs 10,050 crore for the exchequer.

The corpus of the Contingency Fund wasearlier raised from Rs 50 crore to Rs 14,700 crore on December 26 last to help the government to meet essential expenditure as the second batch of supplementary demands for grants could not be presented in the winter session. The corpus is being again enhanced for to allow the government to meet expenditure of technical nature which do not involve net outflow of funds.

The government, it may be recalled, had decided that the liabilities of the Oil Coordination Committee OCC to the oil companies outstanding as on June 30, 1997 amounting to Rs 18,200 crore would be cleared by the government by making payments to the oil companies on the basis of their duly audited claims. The oil companies were supposed to simultaneously invest the money so received from the government in special bonds. The liabilities of the oil companies, since then, have come down to Rs 15,090 crore as on December 31, 1997. It has been argued that since the issue of bonds was crucial to the continuation of reforms in the oil sector andto the success of planned disinvestment of IOC, it had become necessary for the government to sanction an advance of Rs 15,090 crore from the contingency fund to the ministry of petroleum and natural gas for settlement of the issue, pending authorisation by reconstituted Parliament in due course.

The other important decision relates to recapitalisation of the banks. The government has decided to pump in Rs 2,700 crore in the three banks which include United Bank of India, UCO Bank and Indian Bank to help them meet the capital adequacy norms prescribed by the Reserve Bank. This too will not involve any cash outgo as the amount received by the banks would have to be invested in special government securities. Currently, the payments would have to be made from the contingency fund pending authorisation by the reconstituted parliament. The cabinet has also approved the proposal of the finance ministry to sign Avoidance of Double Taxation and Prevention of Fiscal Evasion treaty with respect to taxes on income andcapital with Czech Republic.