Interim Budget may not have much for oil & gas industry

A demand of the oil & gas industry from the budget is to eliminate the import duty on natural gas. Currently, import of natural gas has an import duty levy of between 2.5% and 5%, depending on the form of its import. On the other hand, import of crude oil attracts 0% import duty. Elimination of import duty on natural gas will make it cheaper for Indians. This will give a push up to its consumption. Natural gas is also considered to be a cleaner fuel than oil or coal. But given the fiscal constraints, it looks unlikely that the government will announce elimination or reduction of this import duty.

Bring Oil & Gas under GST regime

Another demand of the oil & gas industry is to bring petroleum and gas under the GST regime. Currently, for oil & gas, the old pre-GST regime continues. This means that states decide the sales tax on them at their individual levels. This demand is unlikely to be met by the Interim Budget in February or the full-year budget in July. This is because state governments are unlikely to agree to this.

State governments are seeing slowing down in the growth of their revenues. In the April- November period of FY 24, the revenues of 16 biggest states grew just by 5% year-on-year, as per data from Icra. This is much less than the 17% annual growth budgeted in the Union Budget of FY 2023-24. State governments would therefore not give up control over setting of sales tax rates on petrol, diesel and natural gas.

Reduction or elimination of SAED

There is also the expectation that Special Additional Excised Duty (SAED) or the windfall tax on domestic crude oil production, export of diesel, and ATF should be completely ended. This tax was imposed in July of 2022. Crude oil prices were high then. Since then, prices have come down. But the ongoing tensions in the Red Sea have once again raised the risk of higher crude oil and gas prices. Last week, missile attack by Houthi rebels caused fire in an oil tanker. This has spiked oil prices once again. On 29th January, 2024, Brent crude oil was trading at $ 83.88 per barrel.