<div>The sustained reduction in global crude oil prices since July 2014 provided the government of India with an array of macro and microeconomic options. It also provided the finance minister the much-needed space to deal with the Budget allocations for 2015-16. So significant was the impact of the oil price drop that given the large import quantum, the Indian economy seems to have turned around. On the back of strong policy initiatives, the government has also managed to turn the sentiments of doing business in India positive.<br /><br />The positive shock of oil price reduction was also well utilised. Especially since it was unpredictable as to how long this benefit will be available, oil prices were maintained until October 2014, and thereafter the opportunity was used to bring long-awaited diesel fuel consumer price decontrol. The policy will, ostensibly, remain in force for some time to come. However, given the affordability demonstrated by consumers, the government chose to keep the savings mostly (up to 66 per cent) with itself rather than pass them on to consumers. <br /><br />The excise duty on fuel was increased to build exchequer earnings, and the tax is also being treated as de facto carbon tax. Concurrently, the carbon tax on coal is also being raised.<br /><br />As the macroeconomic indicators reveal, the situation has improved significantly during FY 2014-15. The release of the new series of national accounts revealed that the economy has been performing much better than what was being depicted earlier. <br /><br />The improvements in some of the macro aggregates of the economy in 2013-14 got further strengthened in 2014-15. Economic growth as measured by the growth in gross domestic product (GDP) at constant market prices was estimated at 5.1 per cent and 6.9 per cent, respectively, during 2012-13 and 2013-14. <br /><br />Driven by lower food and fuel prices, the headline inflation measured in terms of the wholesale price index (WPI) (base year 2004-05=100), which remained persistently high at 6 per cent to 9 per cent during the period 2011-13, moderated to a low of 3.4 per cent in 2014-15 (April-December). <br /><br />Like WPI inflation, retail inflation as measured by consumer price index (CPI), hovering in the range of 9 per cent to 10 per cent for the past two years, moderated significantly since the second quarter of 2014-15 and declined to an all-time low of 5 per cent in the third quarter of the year. <br /> <br /><strong>Pushing ‘Make in India’</strong><br />The Budget proposals have been acknowledged by analysts from the perspective of positive contributions made to further Make in India, improve ease of doing business, ensure availability of funds, rationalise taxes, better enforcement of tax laws and provide for investment in infrastructure.<br /><br />The oil and gas sector is attempting to make the best of the government’s push to make in India. The sector is advocating the introduction of policies to manufacture not only goods, but also deliver services. <br /><br />The sector absorbs a significant quantum of services from imports coupled with a drain on foreign exchange. Policy development is also awaited. <br /><br />Meanwhile, provisions such as the reduction in withholding tax from 25 per cent to 10 per cent for royalty on technology purchase is an important and welcome measure. It will significantly cut input costs of Indian companies and encourage many to set up shop in India. Paring of corporate tax rates in a telescopic manner will make India an attractive destination. <br /><br />Oil and gas sector infrastructure can hope to benefit from the real estate investment trust (REIT) provisions made very favourable now. Carving out investments made in infrastructure and availing of the trust benefits announced last year will give a fillip to the building of infrastructure in this sector.<br /><br /><strong>What’s New, What’s Changed</strong><br />This Budget introduced the definition of ‘ place of effective management’ as a place where key management and commercial decisions concerning the conduct of business of an entity as a whole are made. Oil and gas companies invest in assets overseas for equity oil, for deploying core competency of the company in refining, contracting, and for trading in products. In such businesses, the taxability would be carefully analysed. The provision may lead to restructuring or significant changes in internal processes in the companies.<br /><br />The most significant change heralded by the Budget though is that of rolling out goods and services tax (GST). With only a year given to companies for implementing GST, they would have to swing into action. However, the road map is unclear. The changes in income-tax (I-T) platforms will need significant attention. In any case, logistics in the sector are set to change substantially.<br /><br />A silent revolution is happening in the oil and gas sector since the new government took over. The commitment to arrest leakage of subsidy is demonstrated by strongly pushing for the direct transfer of cooking gas subsidy. In his Budget speech, finance minister Arun Jaitley reiterated the commitment of deploying I-T to turn this into a national-level initiative. The dividends of this success will be enjoyed by the economy in the coming fiscals with enhanced savings in subsidies.<br /><br /><strong>Accelerated Unburdening</strong><br />The oil sector, albeit with the blessing of external factors, provided the economy with reduced inflationary pressures, savings of exchequer costs and contributions to collections. The effect has been on an accelerated footing — within eight to nine months. The sector now expects rapid policy reforms for accelerated unlocking of hydrocarbons by exploration and production companies, and the creation of gas, liquified natural gas (LNG) and marketing infrastructure to develop the gas market. This is much needed for environmentally benign economic development. <br /><br /><em>The author is Leader, Oil & Gas, PwC India</em><br /><br />(This story was published in BW | Businessworld Issue Dated 23-03-2015) </div>
