In a significant policy push to strengthen India’s energy security amid global crude oil volatility, the government has rationalised royalty rates for crude oil and natural gas production. The move is aimed at encouraging domestic exploration and reducing dependence on costly imports.
The decision comes as India faces pressure from rising global oil prices and supply disruptions linked to geopolitical tensions in West Asia.
What Has The Government Changed?
The revised framework, introduced through amendments to the Oilfields (Regulation and Development) Act and related rules, aims to create a more stable and investor-friendly upstream oil sector.
Under the new structure, companies operating in deepwater and ultra-deepwater blocks under the Discovered Small Fields (DSF) and Hydrocarbon Exploration and Licensing Policy (HELP) regimes will not have to pay any royalty for the first seven years of production.
After this period, royalty rates will be:
- 5% for deepwater blocks
- 2% for ultra-deepwater blocks
A similar relief has also been extended to natural gas production from these fields, making early-stage exploration significantly more attractive for investors.
Why The Change Matters
Exploration in deepwater and ultra-deepwater zones is capital-intensive and technically challenging. By reducing the initial royalty burden, the government aims to lower operational costs and improve project viability for energy companies.
Officials believe this will encourage greater private participation, accelerate exploration activities, and ultimately increase domestic crude and gas output.
The reforms are also designed to remove inconsistencies in older regulatory frameworks and offer a more predictable long-term policy environment for investors in the energy sector.
India’s Heavy Dependence On Imports
Crude oil remains India’s largest import item, making the country highly vulnerable to global price fluctuations.
In 2025–26, India imported crude petroleum worth $134.7 billion, forming a major share of its total import bill of $775 billion.
With the ongoing geopolitical crisis in West Asia and disruptions affecting key shipping routes such as the Strait of Hormuz, India has faced additional pressure on its energy supply chain, further highlighting the need to boost domestic production.
Strategic Push For Energy Security
The government’s broader strategy focuses on increasing domestic exploration, attracting investment in high-risk offshore fields, and reducing long-term import dependency.
By easing royalty obligations in the early years of production, policymakers hope to unlock new reserves and strengthen India’s energy resilience in an increasingly uncertain global oil market.