Whalesbook
Industry Pushes for Budgetary Relief
The Indian oil and gas industry is making a strong case for significant fiscal adjustments in the upcoming FY27 Union Budget. The Federation of Indian Petroleum Industry (FIPI), representing sector players, has formally requested the abolition or a substantial review of the Oil Industry Development (OID) cess levied on crude oil extracted from nomination and pre-New Exploration Licensing Policy (NELP) blocks.
OID Cess Under Scrutiny
The OID cess, originally established in 1974, was converted to a 20% ad-valorem levy in March 2016 to reflect falling global crude prices. However, FIPI argues this rate has become excessively burdensome. Historically, the cess hovered between 8-10% of crude prices. The current structure disproportionately impacts mature, declining fields within nomination and pre-NELP blocks, necessitating higher investment to maintain output levels. Producers contend this levy, alongside royalty and other duties, makes domestic production financially unsustainable, particularly when global oil prices are volatile.
Disadvantage Against Imports
A key grievance is that the OID cess applies exclusively to domestically produced crude oil. This puts local producers at a competitive disadvantage compared to imported oil, running counter to the government's 'Make in India' and 'Atmanirbhar Bharat' initiatives. The industry body highlighted that major fields like ONGC's Mumbai High and Bassein, and Vedanta Cairn's Rajasthan block, are subject to this levy.
Proposed Alternatives and Broader Demands
As a middle-ground, FIPI proposed a graded OID cess system. This plan suggests no cess up to $25 per barrel crude oil, a 5% levy between $25-$50, 10% between $50-$70, and retaining the 20% rate only above $70 per barrel. This approach aims to cushion producers during low-price cycles while ensuring revenue for the government. Beyond the OID cess, FIPI also urged the removal of the National Calamity Contingent Duty (NCCD) and Basic Excise Duty (BED) on domestic crude. The NCCD, intended as a temporary measure, has persisted for over two decades, while the BED imposed in 2019 adds to compliance burdens without significant revenue generation.