In a significant move to stimulate the Indian economy, the government announced a reduction in windfall profit taxes on domestically produced crude oil and diesel exports on November 16, 2023. The tax on crude oil was slashed from ₹9,800 per tonne to ₹6,300 per tonne, while the tax on diesel was reduced from ₹2 per litre to ₹1 per litre. This strategic decision is poised to have a far-reaching impact on various aspects of the Indian economy.
Investment Opportunities
The tax reductions are expected to boost the investment attractiveness of India’s oil and gas sector, which is already one of the world’s fastest growing energy markets. According to the Ministry of Petroleum and Natural Gas, there is an investment potential of approximately US $ 100 billion in the Indian oil and gas sector. The ministry has also set up a Project Development Cell to facilitate investments in the sector by providing seamless access, regulatory support and detailed project reports.
The tax reductions will also incentivize domestic exploration and production of oil and gas, which is a key priority for the government to reduce import dependence and enhance energy security. India aims to increase the share of natural gas in its energy mix from 6.7 % to 15% by 2030 and double the area under exploration and production of oil and gas to 0.5 million square kilometer by 2025 and to 1 million sq km by 2030.
Economic Benefits
The tax reductions will also have positive spillover effects on other sectors of the economy, such as manufacturing, transportation, agriculture and power generation. The lower tax burden will improve the profitability and competitiveness of domestic oil and gas producers and exporters, which will in turn increase their contribution to the GDP, employment and tax revenues. The lower cost of diesel will also benefit the consumers, especially farmers who use diesel for irrigation pumps and tractors.
The tax reductions are also aligned with the government’s vision of making India a global hub for refining and petrochemicals. India is already the second largest refiner in Asia and fourth largest in the world with a refining capacity of 249.9 million tonnes per annum. The lower tax on crude oil will reduce the input cost for refineries and enhance their margins. The lower tax on diesel exports will also make Indian refiners more competitive in the international market.
Data Highlights
Here are some data highlights from India’s oil and gas sector as of November 2023:
- India consumed 152.3 MMT petroleum products and 43.7 BCM natural gas in April-Nov’23, making a growth of 4.9% and 8.4% over the April-Nov’22.
- India’s crude oil production was 27.8 MMT in April-Nov’23, while natural gas production was 25.8 BCM.
- India imported 149.6 MMT of crude oil and 24.2 MMT of LNG in April-Nov’23, accounting for 83.9% and 55.4% of its consumption respectively.
- India exported 34.4 MMT of petroleum products in April-Nov’23, making it a net exporter of refined products.
- India’s self-sufficiency of oil and gas was 20.1% in April’23.
- India had 983.1 lakh PMUY connections, 3,180 lakh active LPG domestic connections, 11,763 LPG distributors in Gramin Kshetriya, 2021 LPG distributors in Durgam Kshetriya as of December’23.
- India had 11,446,646 domestic PNG connections, 5,899 CNG stations as of July’23.
- India achieved an ethanol blending rate of 10.2% in November’23.
Conclusion
India’s oil and gas sector is poised for a major expansion as the government announced tax reductions on crude oil and diesel production and exports. The move is expected to boost investment, domestic output, economic growth and energy security in the country. India is already one of the world’s largest consumers and producers of oil and gas, and the tax reductions will further enhance its position as a global energy player.