Damp squib for oil & gas sector

Damp squib for oil & gas sector

The Budget has mostly been a damp squib for the oil and gas sector with long-pending demands ignored yet again. The request that exploration and production activities be kept outside the service tax net was given the go-by; on the contrary, the service tax has been raised from 12.36 per cent to 14 per cent. Some of the industry demands that were ignored yet again were: no clarification that ‘mineral oil’ would include gas for tax holiday purposes, extension of tax holiday for exploration and production companies from seven years to 10 years, tax holiday be given for blocks under contracts awarded after March 2011. But the Centre, turning a deaf ear to the sector’s demands, does not come as a surprise, given the stated plan in the Budget to phase out tax exemptions to businesses over the next four years.

It is not all bad news though. Reading between the lines, it seems that the public sector upstream companies ONGC and Oil India, and GAIL (India) may get respite from fuel subsidy sharing this quarter. They may also get some refund of the subsidy borne in the first nine months of this fiscal. That is because the Centre’s revised petroleum subsidy for 2014-15-₹60,270 crore — leaves just about ₹25,000 crore to be incurred by ONGC, Oil India and GAIL (India) in 2014-15. As against this, they have already borne ₹43,000 crore so far. The Centre’s budgeted subsidy of ₹30,000 crore for 2015-16 may also not be out of whack, if crude oil price remains subdued next year, and the subsidy rationalisation programme continues.


What we need to be thankful for is that the customs duty on imported crude oil was not raised, as was widely expected. ONGC, Oil India and Cairn India may not be too happy though, since costlier crude would have improved their realisations.

The background

India imports almost 80 per cent of its crude oil requirement, and about a quarter of its natural gas needs. Domestic production has been languishing, for various reasons including financial incentives and tax policies which are perceived as unfriendly. Relief in the Budget was widely anticipated from a pro-reform Government which is betting big on ‘Make in India’. The rout of crude oil over the last year has provided a breather to the Centre’s finances and helped to meet its petroleum subsidy target.

The verdict

While the Budget did not bring much good news for the oil and gas sector, the public sector upstream companies ONGC and Oil India, and GAIL (India) should benefit from a lower subsidy burden.


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