NOVEMBER 20248FINANCE MINISTRY TO REMOVE WINDFALL TAX OWING TO DROP IN OIL PRICESRAPID INDUSTRIALIZATION & DECARBONIZATION KEY DRIVERS OF HEAT PUMP MARKETSIndia's finance ministry is currently evaluating the potential removal of the windfall tax on local crude oil production, according to Tarun Kapoor, advisor to the Prime Minister. Kapoor explained that the tax, which was initially imposed in 2022, has become less relevant due to a significant drop in global oil prices compared to when it was first introduced.The global heat pump market reached a significant value of $88B in 2023, marking steady growth at a compound annual growth rate (CAGR) of 7.43percent since 2018. This growth is expected to accelerate, with the market projected to reach $142B by 2028, expanding at a rate of 10.01 percent. Beyond that, the market is anticipated to grow further at a CAGR of 10.42 percent, reaching a value of $233B by 2033. The windfall tax was imposed to curb the profits of oil producers like Reliance and ONGC as they capitalized on high global refining margins by selling fuel internationally rather than domestically. With global oil prices now significantly lower, Kapoor indicated that the petroleum ministry has already communicated with the finance ministry regarding the issue, leaving the decision in the finance ministry's hands.If the tax is removed, it could provide substantial relief for India's oil giants by boosting their gross refining margins. India first imposed the windfall tax on crude oil producers in July 2022, extending it to exports of gasoline, diesel, and aviation fuel.In a recent development, the Indian government eliminated the windfall tax on crude oil in September 2024, reducing it from Rs 1,850 per tonne, following a previous reduction from Rs 2,100 per tonne in August 2024. These adjustments were made in response to the continuous decline in global crude prices, which currently hover at just over $75 per barrel, down from over $92 per barrel in April.The government reviews the windfall tax every two weeks, and ongoing lower global oil prices may prompt further reductions or the complete removal of the tax altogether. Looking forward, the heat pump market is expected to benefit from favorable trends such as measures to reduce carbon footprints, rapid urbanization, increased investments in commercial construction, and continued industrialization.The historic rise in the heat pump market was driven by several key factors, including the growing focus on renewable energy, increased demand for energy-efficient solutions, a surge in construction activities, and supportive government initiatives. However, growth during this period was somewhat hindered by the high installation costs and challenges like import restrictions and export bans on certain components.Government incentives, green building standards, and growing consumer awareness are also driving the adoption of heat pumps. As countries and industries seek ways to mitigate climate change and meet carbon reduction goals, heat pumps offer a cost-effective, sustainable solution. Despite these positive developments, the heat pump market could face challenges in the future due to the shortage of skilled personnel needed for installation and maintenance. Nonetheless, the overall outlook for the market remains robust, with increasing investments and supportive policies set to propel further growth in the coming years. TOP STORIES
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