In response to ongoing fluctuations in the market, the Indian government led by Prime Minister Narendra Modi has announced a slight increase in the windfall tax on domestically produced crude oil and diesel.
Effective starting February 16, 2024, the special additional excise duty (SAED) on crude oil will rise to 3,300 rupees per tonne, equivalent to approximately $40, while diesel exports will now incur a duty of 1.50 rupees per litre.
These recent adjustments represent a marginal uptick from the previous rates, indicating the government’s strategy to capitalize on profits in the energy sector amidst global uncertainties. While the SAED on petrol and aviation turbine fuel remains unchanged, the reintroduction of duty on diesel exports reflects efforts to strengthen domestic reserves in light of the Red Sea crisis.
The fortnightly review mechanism, initiated in July 2022, ensures that tax rates are adjusted in line with prevailing oil prices, enabling timely fiscal adjustments.
This decision comes against the backdrop of fluctuating global oil prices, with Brent crude hovering around $81.97 per barrel and the Indian crude oil basket at $83.08 a barrel as of February 14. Market volatility presents both challenges and opportunities for oil-dependent economies such as India.
Projections from the International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Countries (OPEC) paint different pictures of the oil market. While OPEC anticipates robust demand growth in 2024 and 2025, the IEA’s revised projections indicate a slowdown in global oil demand momentum.
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