The government has reduced royalty rates for crude oil, natural gas, and casing head condensate as part of efforts to boost India's upstream oil and gas sector. According to reports from Business Standard, the royalty rate has been reduced from 16.66 per cent to 10 per cent for onshore crude oil, from 9.09 per cent to 8 per cent for offshore crude oil, and from 10 per cent to 8 per cent for natural gas. The revised structure aims at simplifying calculation methods and lowering the financial burden on energy companies, while also part of wider efforts by the Centre to increase oil and gas production and reduce its energy import bill. The Ministry of Petroleum and Natural Gas issued an official notification on 8th May 2026, amending the schedule to the Oilfields (Regulation and Development) Act, 1948, formalizing these changes.
India's domestic crude oil production has dropped consistently from 30.5 million tonnes (MT) in FY2020-21 to 28.0 MT in FY2025-26, while crude oil imports have doubled in value from $62 billion to $123 billion during the same period, according to data from the Petroleum Planning and Analysis Cell (PPAC). The royalty cuts follow amendments made in 2025 to the Oilfields Regulation and Development (ORD) Act and PNG Rules, with the most significant intervention being projects in difficult terrain such as deepwater and ultra-deepwater areas exempted from royalty payments for the first seven years. The government has also introduced a flat deduction formula allowing a fixed deduction of 20 per cent towards post-production costs.
Hardeep Singh Puri, Minister for Petroleum and Natural Gas, described the royalty rationalisation as marking a new era for India's oil and gas regime by eliminating inconsistencies and driving growth in the upstream sector. As reported by Business Standard, the petroleum sector's contribution to the central government in the form of royalty on crude oil and natural gas stood at ₹8,214 crore in FY2025-26, with an additional ₹9,721 crore in royalty collected by state governments, taking the total to about ₹18,000 crore. At least one large investor, Vedanta Oil & Gas, welcomed the government's decision, with a company spokesperson stating the measure underscored the government's commitment to strengthening domestic exploration and production.
With geopolitical tensions escalating, experts are emphasizing the need for comprehensive energy planning to manage potential supply disruptions. According to recent analysis, India has about 74 days of oil storage - about 7 days of strategic petroleum reserves and 67 days of storage at refineries, though these numbers face questions about accuracy and real-time availability. The government has implemented strategic measures including asking refineries to increase LPG production by 40% and diversifying import sources from 27 to 41 countries. Industry experts recommend forming a high-level cabinet subcommittee consisting of all energy ministries to coordinate emergency response and developing sophisticated computer models to simulate different energy scenarios, particularly focusing on maintaining LPG supplies for the 75% of households that rely on LPG for cooking needs.
