Oil & gas industry expects focus on energy transition, cleaner fuels in FM's Budget speech

Budget 2024: All eyes on Centre's last fiscal roadmap before parliamentary polls

The oil and gas industry is hopeful that the upcoming Budget 2024 would make announcements pertaining to green energy transition funds for companies and reforms to promote use of cleaner fuels in the country.

Finance Minister Nirmala Sitharaman is set to present the Union Budget on February 1 in the Parliament. However, this budget might not have ground-breaking announcements as the full budget for FY25 would be presented after the formation of the new government.

Oil and gas industry players expect that the focus of the upcoming budget would be on energy transition and towards achieving net-zero emissions targets for oil PSUs. In the previous Union Budget for FY24, Sitharaman allocated Rs 30,000 crore for capital investments towards energy transition and net zero emission objectives for state-run oil marketing companies (OMCs). However, the amount has not been allocated to the OMCs yet.

Tune in to Moneycontrol for live budget coverage.

“Create a Green Transition Fund of India to finance green projects especially of the private sector including MSMEs. The fund could be set up by GoI, in partnership with the private sector and a multilateral institution like the World Bank Group. Set up inter-ministerial groups to develop sectoral net zero roadmaps, starting with the hard to abate sectors,” said Confederation of Indian Industry (CII) said in its Budget expectations.

Additionally, the industry is also hopeful that the budget might include some reforms for city gas distribution players to boost consumption of natural gas consumption in the country.

“It is possible that we might see some incentive structure for city gas distribution players to improve the viability and execution of projects,” said Kapil Garg, Founder and Promoter, Oilmax Energy Pvt Ltd.

Demand of including petroleum products under GST

Similar to previous years, the oil and gas industry players have again urged that the government to consider bringing petroleum products such as petrol, diesel, natural gas and aviation turbine fuel (ATF) under Goods and Service Tax (GST).

“Widening the scope of GST, Petroleum products, ATF, natural gas, and electricity should be subsumed under GST for providing seamless flow of input tax credits,” said CII.

Despite the industry’s demand, petroleum products have not been included under GST, majorly due to opposition from state governments. To be sure, any decision on GST is taken by the GST Council, a joint forum of the Centre and the states. But a recommendation in the Budget by the Finance Minister, who heads the Council, can be a big positive signal.

“Petroleum products are currently outside GST purview. So, there has been a longstanding demand of the industry that these should be included within GST to enable free flow of input tax credit and avoid stranded taxes,” said Prashant Vasisht, VP & Co-Head, Corporate Ratings, ICRA.

Other expectations

PHD Chamber of Commerce and Industry (PHDCCI) said simplifying foreign direct investment (FDI) policies for sectors such as PSU oil refineries, defence, etc. could result in better inflow in the country.

“The complexity and variability of sector-specific FDI caps and restrictions in India pose challenges to investors. Simplifying these policies can reduce uncertainty and make India more attractive. Concerns about subjectivity and potential delays in national security reviews should be addressed. Harmonization of procedures and approvals is essential to level the playing field,” said PHDCCI in its pre-budget memorandum.

To boost consumption of natural gas, the industry expects LNG to be exempted from customs duty. “Extend customs duty exemption on LNG /NG to all importers for consumption in all end-user sectors to promote gas usage and to increase the use of cleaner fuel,” said CII.

Additionally, the industry is hopeful of announcements in the budget related to discontinuation of windfall tax and oil and gas industry being categorized under the infrastructure sector to avail improved financing and credit opportunities.

“Remove levy of Special Additional Excise Duty (SAED) on Petroleum Crude, or to continue the levy for some time as an extraordinary measure, at an ad-valorem levy of 20% of incremental crude price over USD 100,” CII said.