The Indian government has announced a significant policy change in its energy sector. Effective September 18, 2024, the windfall tax on petroleum crude will be reduced to zero from its previous rate of 1,850 rupees per metric ton. This decision comes as part of the government's regular fortnightly review of the windfall tax policy.
India, the world's third-largest oil importer and consumer, introduced windfall taxes on oil producers in July 2022. The recent elimination of this tax is attributed to a substantial decline in global crude oil prices. The Brent crude, a major benchmark for worldwide oil purchases, has experienced a notable drop from over $92 per barrel in April 2024 to below $75 per barrel as of September 17, 2024.
This tax adjustment is expected to have significant implications for India's oil and gas sector, which contributes approximately 15% to the country's GDP. The nation imports about 85% of its oil needs, making it particularly sensitive to global price fluctuations.
The windfall tax, a levy on unexpected profits often imposed on energy companies, has been a tool for the Indian government to manage the economic impacts of volatile oil prices. Its removal reflects the government's responsive approach to changing market conditions.
India's oil consumption is projected to increase to 7.2 million barrels per day by 2030, underscoring the importance of effective energy policies. The country has been actively diversifying its oil import sources in recent years, with OPEC+ countries currently supplying about 65% of India's oil imports.
In line with its energy strategy, India aims to boost its refining capacity to 400 million tonnes per annum by 2025. The nation also maintains strategic petroleum reserves with a capacity of 5.33 million metric tons, enhancing its energy security.
The government's decision to eliminate the windfall tax aligns with its broader goal of increasing the share of natural gas in India's energy mix to 15% by 2030. This move, coupled with the country's regulated fuel pricing mechanism known as trade parity pricing, demonstrates India's multifaceted approach to energy management.
As global oil markets continue to evolve, the Indian government's policy adjustments, monitored by the Petroleum Planning and Analysis Cell (PPAC), will play a crucial role in shaping the nation's energy landscape and economic stability.