Specific Purpose Funds in the Indian Extractive Sector and Accountability Concerns: The Case of Oil Industries Development Cess Fund

By Dr. Himanshu Upadhyaya

A cess is an additional tax levied by the Government to raise the funds for a specific purpose. At the time of introduction, respective Finance Ministers have claimed that the proceeds coming to the State by the way of imposition of the cess would be earmarked to fund a specific social purpose.  However, an in-depth study of the cess funds, accounting practices and audit remarks would show that citizens and budget study groups need to be more vigilant and monitor the special purpose cess funds. 

This post expects to generate a discussion around the idea of amplifying the Audit Findings in the latest audit report on Union Government (Finance Accounts) for the year ended 31st March 2020 (Fiscal Year 2019-20) that was tabled in parliament on 29th November 2021 around the special purpose cess funds.

Let’s start by paying attention to what does the national auditor tells us about Oil Industries Development Cess Fund.

Oil Industries Development Cess Fund was created by a special legislative action in the year, 1974, for the purpose of development of oil industries. The rules under this legislation were notified on 22nd March 1975. Statement of Objects and Reasons of the Oil Industry Development Board 1974 reads as follows:

  • The programs for securing self-reliance in petroleum and petroleum based raw materials should be rapidly stepped up.
  • Necessary resources for execution of such programs must be assured.
  • For these purposes, cess to be levied on crude oil and natural gas to create an Oil Industry (Development) Fund
  • The fund would be used exclusively to provide financial assistance to the organizations engaged in development programs of oil industry.

However, there is a systematic reneging of these objects and reasons when we look at the way this fund has been utilized by successive governments since 1991.

Just like any other Fund Management Authority that is given the duty to manage the fund and ensure that the special purpose as envisaged in the cess legislation are fulfilled, under Oil Industries Development Act, 1974, an Oil Industries Development Board was constituted as Fund Management Authority on 13th January 1975.

As per section 16 of the Oil Industry Development Act, 1974 the proceeds of the duties of excise levied are first to be credited into Consolidated Fund of India. However, receipts under all the Special Purpose Cess funds shall stand transferred to a designated fund created under Public Accounts during the same fiscal year. It is but a common sense that if the union government was to indulge in short transfers of such cess receipts by transferring to the designated fund created under Public Accounts, the very purpose of the creation of special purpose cess gets defeated. 

It is fundamentally wrong on the part of the Union government and the Finance ministry in treating cess receipts as if it were a tax income which is available for general purpose budgetary expenses.

It can be said with absolute certainty that where a specific Fund Management Authority is duly constituted under the cess act, the cess receipts must stand transferred in full during the same fiscal year to the fund management authority and the Union Government can retain only such a miniscule portion as is provided for in the Oil Industry Development Rules towards the cost of cess collection.

In addition to this special created cess fund, Section 17 of the Act, also provides for additional grants or loans that the Central Government may provide, after due appropriation made by the parliament by law, as central government may consider necessary.

However, in a shocking revelation the latest CAG audit report tells us that:

“Audit scrutiny of statement 8 of Union Government Finance Accounts (henceforth UGFA) for the period FY 2010 to FY 2020, showed that the total cess on crude oil collected was Rs 1,28,461 crore. Corresponding scrutiny of statement 9 showed that no funds out of the net proceeds of the cess had been transferred to OIDB.”

CAG auditors didn’t stop at that! They added further that since 1991-’92, successive central governments have systematically starved OIDB of the funds that rightfully belongs to the special purpose under which the cess was instituted in 1974. Let’s listen in:

“It is also significant that since inception of OIDB, only Rs 902.40 crore had been transferred to OIDB and since 1991-92, no funds out of the cess collected by the Government were transferred to OIDB.”

The audit paragraph also very clearly points out how the finance ministry specifically and central government generally has failed to rectify this methodical mistake, after it was pointed out by the Parliamentary Standing Committee on Petroleum and Natural Gas (15th Lok Sabha), but before we discuss that, let’s see the statistics on cess receipts and transfers to OIDB since 1974-75:

YearCollection of Cess on Crude Oil by GovtTransferred to OIDBShort-Transfer
1974-75Rs 30.82 CroreRs 16.01 CroreRs 14.81 Crore
1975-76Rs 50.05 CroreRs 62.27 CroreNil
1976-77Rs 52.88 CroreRs 48.19 CroreRs 4.69 Crore
1977-78Rs 63.72 CroreRs 50.10 CroreRs 13.62 Crore
1978-79Rs 68.89 CroreRs 20.00 CroreRs 48.89 Crore
1979-80Rs 69.70 CroreRs 140.00 CroreNil
1980-81Rs 60.40 CroreRs 25.01 CroreRs 35.39 Crore
1981-82Rs 138.97 CroreRs 142.92 CroreNil
1982-83Rs 268.83 CroreRs 100.00 CroreRs 168.83 Crore
1983-84Rs 812.80 CroreNilRs 812.80 Crore
1984-85Rs 850.12 CroreNilRs 850.12 Crore
1985-86Rs 897.66 CroreNilRs 897.66 Crore
1986-87Rs 981.50 CroreNilRs 981.50 Crore
1987-88Rs 1806.60 CroreNilRs 1806.60 Crore
1988-89Rs 2013.64 CroreRs 63.09 CroreRs 1950.55 Crore
1989-90Rs 2914.57 CroreRs 50.00 CroreRs 2864.57 Crore
1990-91Rs 2785.15 CroreRs 89.81 CroreRs 2695.34 Crore
1991-92Rs 2500.64 CroreRs 95.00 CroreRs 2405.64 Crore
1992-93Rs 2207.61 CroreNilRs 2207.61 Crore
1993-94Rs 2175.46 CroreNilRs 2175.46 Crore
1994-95Rs 2566.16 CroreNilRs 2566.16 Crore
1995-96Rs 2819.52 CroreNilRs 2819.52 Crore
1996-97Rs 2558.03 CroreNilRs 2558.03 Crore
1997-98Rs 2528.74 CroreNilRs 2528.74 Crore
1998-99Rs 2448.18 CroreNilRs 2448.18 Crore
1999-2000Rs 2589.44 CroreNilRs 2589.44 Crore
2000-01Rs 2582.21 CroreNilRs 2582.21 Crore
2001-02Rs 2722.79 CroreNilRs 2722.79 Crore
2002-03Rs 4873.17 CroreNilRs 4873.17 Crore
2003-04Rs 4919.49 CroreNilRs 4919.49 Crore
2004-05Rs 5033.97 CroreNilRs 5033.97 Crore
2005-06Rs 4857.58 CroreNilRs 4857.58 Crore
2006-07Rs 6875.53 CroreNilRs 6875.53 Crore
2007-08Rs 6854.00 CroreNilRs 6854.00 Crore
2008-09Rs 6680.94 CroreNilRs 6680.94 Crore
2009-10Rs 6637.13 CroreNilRs 6637.13 Crore
2010-11Rs 7671.44 CroreNilRs 7671.44 Crore
2011-12Rs 8065.46 CroreNilRs 8065.46 Crore
2012-13Rs 14473.16 CroreNilRs 14473.16 Crore
2013-14Rs 14542.38 CroreNilRs 14542.38 Crore
2014-15Rs 14677.24 CroreNilRs 14677.24 Crore
2015-16Rs 14468.94 CroreNilRs 14468.94 Crore
2016-17Rs 12778.20 CroreNilRs 12778.20 Crore
2017-18Rs 14246.20 CroreNilRs 14246.20 Crore
2018-19Rs 18556.09 CroreNilRs 18556.09 Crore
2019-20Rs 15800.92 CroreNilRs 15800.92 Crore
TotalRs 2,23,576.92 CroreRs 902.40 CroreRs 2,22,674.52 Crore

All the figures in the above table are from page 09 and 10 of the latest Annual Report of Oil Industry Development Board for the fiscal year 2019-20.

Citizens can see it for themselves whether OIDB has ever been given even a single rupee under additional grant or loan by the Central Government as envisaged under Section 17 of the Oil Industry Development Act, 1974. On the contrary having only given OIDB 0.40 percent of the total cess receipts as on 31st March 2020, the central government has only squeezed a special purpose fund in the name of developing oil industry to finance fiscal deficits in unethical ways.

The latest CAG Audit Report on Union Government (Finance Accounts) also sheds some light on whether the Union Ministry of Petroleum and Natural Gas has called out this and has registered its protest on this methodical madness, by stating:

“Parliamentary Standing Committee on Petroleum and Natural Gas (15th Lok Sabha) had also noted that funds collected from this annual cess were being allocated by MoF in violation of the OIDB Act. When the matter was pursued by the Ministry of Petroleum and Natural Gas (MoPNG), MoF stated (January 2015) that the Government was financing various activities from the budget which included proceeds from the Cess, and this qualified as being for the development of oil industry in terms of the OIDB Act. It may however be noted that the treatment of the cess as general pool tax defeats the very purpose of levy of the cess which was to create a non-lapsable pool of funds for specified use. Further, audit observed that only Rs 15,506 Crore has been spent in last five years on activities pertaining to the development of oil industry by the Ministry as against collection of Rs 72,384 crore by way of cess during this period.” 

Thus, the Constitutional audit institute has alerted us all by writing a clear and unambiguous conclusion of the audit paragraph as follows:

“Due to non-transfer of the Cess over the past 10 years to OIDB, the same was retained in CFI. As a result, there was no assurance if the cess was used for the purpose for which these were collected”.

Similar issues plague other extraction related funds as well such as the District Mineral Foundation Trust (DMF), National Mineral Exploration Trust (NMET), Goa Iron Ore Permanent Fund (GIOPF), Odisha Mineral Bearing Areas Development Corporation (OMBADC), Karnataka Mining Environment Restoration Company (KMERC), Haryana Mining Area Ecological Restoration Fund. In our next dispatch, we will present an analysis of what the latest CAG audit report tells us about National Mineral Exploration Trust Fund, that was envisaged under MMDR Amendment Act of 2015.   


The author is an Assistant Professor at Azim Premji University and has extensively studied social and ecological issues around large irrigation dams, hydropower and mining projects, ecological impacts and governance, public finance, and accountability.