Oil and Gas Sector – HELP, Open Acreage Policy, etc.

Government scraps Windfall Tax on Crude Oil

Prelims Only | Economics | Mains Paper 3: Indian Economy
Note4Students

From UPSC perspective, the following things are important :

Prelims level: Windfall Tax

Why in the News?

The Government of India has scrapped the windfall tax on crude oil, which was previously set at ₹1,850 per tonne.

What is Windfall Tax?

Details
Definition A higher tax levied on companies that earn unexpected and extraordinary profits due to external factors.
Purpose To capture a portion of excess profits from industries benefiting from global price surges, such as oil.
Imposition in India Imposed as a Special Additional Excise Duty (SAED) on crude oil production and exports of diesel, petrol, and aviation turbine fuel (ATF).
Dynamic Tax Rate Revised every 15 days based on international oil prices in the preceding fortnight.
First Imposed July 1, 2022, during the Russia-Ukraine conflict and post-COVID recovery.
Application Applies to domestically produced crude oil and exports of diesel, petrol, and ATF.
Reasons for Imposing
  • Sharp rise in global oil prices due to external factors like the Russia-Ukraine war.
  • Capture supernormal profits of energy companies for public welfare.
Benefits
  • Generates revenue for public welfare schemes.
  • Ensures fair distribution of profits from market volatility.
  • Stabilizes fuel prices during inflation or supply chain disruptions.

 

India’s Crude Oil Trade:

  • India is the 3rd largest oil consumer globally, following the US and China.
  • The country relies on imports for 85% of its oil needs, with this dependence expected to increase due to declining domestic production.
  • Russia has become India’s top oil supplier, with imports surging to 1.53 million barrels per day (bpd) in January 2024.
  • Russia (1st) > Iraq (2nd) > Saudi Arabia (3rd)> UAE (4th) – Crude oil export to India 

 

PYQ:

[2020] The term ‘West Texas Intermediate’, sometimes found in news, refers to a grade of:

(a) Crude oil

(b) Bullion

(c) Rare earth elements

(d) Uranium

[2017] Petroleum refineries are not necessarily located nearer to crude oil producing areas, particularly in many of the developing countries. Explain its implications. (250 words)

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