Political compulsions continue to overrule economic considerations as the government on Thursday decided to spare consumers a hike in the retail prices of petrol and diesel. Instead, it has chosen the easy way out by again issuing oil bonds to help public sector downstream companies absorb the impact of the surging global crude oil prices.

Simultaneoulsy, the Cabinet has decided to give budgetary subsidy to domestic LPG and kerosene for three more years from April, 1, 2007. The government provides about Rs 2,680 crore annually from its Budget to subsidise these cooking fuels. The extension of the subsidy does not, however, impact the fisc as the cash outgo has been kept unchanged. The bonds are off-Budget transactions.

These bonds will help loss-making oil marketing companies Indian Oil, HPCL and BPCL come around the bend for the time being. For the current fiscal, their under-recoveries are estimated at Rs 54,935 crore. The Cabinet has approved oil bonds worth Rs 23,457.24 crore to the oil marketing firms. A first tranche of about Rs 11,800 crore, to compensate for the losses suffered in first half of 2007-08, will be issued by next week.

In addition, a substantial chunk of Rs 19,227.25 crore of the total under-realisation in revenue will be borne by upstream firms ONGC, GAIL and OIL.

Last year, the upstream firms contributed Rs 20,507 crore. Petroleum minister Murli Deora told reporters after a meeting of the Cabinet Committee on Economic Affairs (CCEA), ?We have kept our promise of not raising the prices of sensitive petroleum products.?

?Oil bonds as a percentage of under-recovery is the same as last year. In 2006-07, oil bonds worth Rs 24,121 crore were issued,? he said, adding that the remaining amount of under-recovery would be borne by IOC, BPCL and HPCL.

IOC, BPCL and HPCL are currently losing Rs 4.34 a litre on petrol, Rs 6.9 per litre on diesel, Rs 15.95 a litre on PDS kerosene and Rs 175 per LPG cylinder.

Sensing the gravity of the situation, Prime Minister Manmohan Singh had met Deora and Finance minister P Chidambaram earlier this week to thrash out ways of mitigating the impact of the rising prices of international crude oil that meets 73 % of India?s fuel needs.

Deora said the oil prices in the international market continued to be volatile. ?In the recent months, the Indian basket of crude oil touched a high of $77.20 a barrel on September 21.? The Indian basket averaged $75.85 a barrel this month, up from the September average of $74.83 a barrel.