By Prachur Sah
The Union Budget has set the ball rolling for Amrit Kaal or the next 25 years leading to a century of India’s independence. In cognizance of the country’s core interests in achieving atmanirbharta through Make in India, the Budget has done well to attend to the broad pillars of infrastructure development, productivity enhancement, ease of doing business, energy transition and sustainable development. With an impressive growth rate of 9.2% in the past year, this Budget has lifted the curtains for India’s economic recovery after two years of harsh pandemic-driven uncertainty.
Positively, the outlay for capital expenditure in the Budget has once again been stepped up sharply by 35.4% to 7.50 lakh crore in 2022-23. Unlike revenue expenditure, a rise in capital expenditure is always welcome for long-term progress. Further, the record-breaking GST collection of1.40 lakh crore will play a driving role for the government to fulfil its welfare objectives and strengthen our economy at its roots. Ultimately, for a country like India, finding the correct balance between expenditure and income will pave the way for holistic development and economic profitability.
The economy is expected to grow by 8-8.5% through 2022-23. Simultaneously, the government will continue to spend large sums on developing public goods and welfare services. For this, we must redraw our focus on curtailing imports that have increased 38% year-on-year. Crude, here, features prominently as India continues to import ~85% of its requirement, capturing ~26% of the country’s total import basket. The last year of volatility, particularly, has led to 119.2% year-on-year rise in imports to touch $118.3 billion in April-December 2021. This large sum that is today filling foreign coffers, if redirected, would help us secure atmanirbharta and shield our people from volatile international markets.
The government has done well to increase domestic production and encourage new exploration with the introduction of HELP, NELP, OALP, etc. However, new fields comprise a small percentage as >95% of our domestic production comes from ageing pre-NELP and nomination blocks that do not enjoy the benefits of newer policy revisions. These ageing fields are experiencing the double-edged sword of falling production and steep taxation to the extent of ~67% of their income, which is preventing reinvestment in fresh technology and consequently, limiting output. Further, domestic producers are also encountering an unexpected challenge in uneven import parity as domestic crude sales to refineries are singularly subject to CST/VAT unlike their import counterparts. There is also lack of marketing freedom with volumes of crude set for designated refineries that reduce the bargaining power of domestic producers. Ultimately, simplification of tax holds key for the sector’s progress. Tax mop-ups and record-breaking GST collections are augmenting revenues and allowing greater capital expenditure. For the oil and gas sector, similar introduction of simpler tax slabs can not only aid the sector but also decrease import burden and increase long-term income — which then can be redirected to social welfare spending.
India boasts of rich hydrocarbon potential estimated at 300 billion barrels of oil equivalent, of which 71% is yet to be discovered. However, its abilities have been curtailed by constricting policies. Today, change is visible on the horizon and a few more hastened steps will take us to our desired end.
Boost to transport, logistics and businesses of public interest under PM Gati Shakti have been welcomed by the industry and similar initiatives for the oil and gas sector can further aid India’s economic growth. Our greatest challenge today rests in controlling unnecessary imports that is preventing a full-fledged leap into a more prosperous tomorrow. We remain hopeful that the government will continue to remain cognisant of the challenges encountered by domestic producers and soon, we will be able to chart a path towards energy atmanirbharta for the country.
(The author is Deputy CEO, Cairn Oil and Gas. Views are personal.)
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