Energy Budget 2017: Oil and Gas sector requires immediate assistance, Here’s what the Modi government can do

This is not just essential to assist the oil and gas industries of India, but also to meet the Prime Minister's own vision of cutting down on oil imports by 10 percent by 2020.

Edited By: Srividhya Iyer

Updated: January 26, 2017, 1:06 PM IST

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Hindustan Petroleum

New Delhi, January 26: Huge depressions in the oil and gas prices have meant significant losses for the oil and gas sector in the country. While the Indian economy has generally been at the receiving end of a boost due to the fall in oil prices, the sector by itself is dire need of governmental assistance.

India being a net importer of petroleum and other fossil fuels, can afford do lend incentives and other forms of aid to keep the industry afloat. While the government did launch reforms in the exploration methodology that is currently in practice in the form of the Hydrocarbon Exploration & Licensing Policy (HELP) in 2016, further budgetary support is required.

This is not just essential to assist the oil and gas industries of India, but also to meet the Prime Minister’s own vision of cutting down on oil imports by 10 percent by 2020. There are several reforms that the government can introduce on its behalf to meet the target. (Also Read: Budget 2017: Key expectations from Infrastructure, Energy, Transportation, Banking and other sectors) 

According to industry experts and the Federation of Indian Chambers of Commerce & Industry (FICCI), one of the key boosts to the industry can be delivered by exempting the service tax that is levied on the exploration of oil and gas.  This will prove a boon for new ventures as well as old ones willing to launch new exploration projects. The demand also remains reasonable in view of the fact that the exemption is already granted to other sectors involved in infrastructure development such as roads, airport, railways, and ports.

Another area wherein, the 2017 budget may cut down service taxes is the 15 percent tax that is currently levied on the transportation of LNG via waterways as well as its regasification. This means lesser incentives for the use and production of natural gas. Another major step that can be taken to promote natural gas use in India would involve cutting down the import duty levied on natural gas.

Currently, the country consumes approximately 16 million tonnes of LNG, this is a significant rise from the 13 million tonnes consumed in 2014-15 and the increase is expected to continue in the forthcoming year. While currently duty-free LNG imports are allowed if the LNG is used for electricity production and public distribution, other sectors such as fertiliser and petrochemicals could also do with a boost.

Further impetus can be provided to the industry if the Budget 2017 considers providing an exemption of Excise Duty on CNG as well as rationalising the oil industry development cess and other charges placed for the development and production of Crude Oil.