ONGC & Budget 2026: Carbon Capture Boost, But Tax Reforms Missed

Introduction: A Strategic Push for Energy Transition

The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, charted a course for India's energy sector with a clear emphasis on long-term sustainability and technological advancement. For Oil and Natural Gas Corporation Ltd (ONGC), India's largest oil and gas producer, the budget delivered a significant boost for green initiatives but left long-standing demands for major tax reforms unaddressed. The key takeaway for ONGC is a strategic push towards decarbonization, supported by government funding, while the existing operational and fiscal landscape remains largely unchanged.

Major Boost for Carbon Capture Technology

The most direct and significant announcement for ONGC and the broader refining sector is the proposed ₹20,000 crore outlay over the next five years for Carbon Capture, Utilization, and Storage (CCUS). The Finance Minister identified refineries as one of the five key industrial sectors to benefit from this initiative. This scheme is designed to help industries capture carbon dioxide emissions from their processes, preventing them from entering the atmosphere.

For ONGC, this is a major positive. As a significant hydrocarbon producer, the company is under increasing pressure to align with global environmental, social, and governance (ESG) norms and contribute to India's climate goals. The CCUS fund will provide crucial financial support for capital-intensive decarbonization projects, reducing the investment burden on ONGC and accelerating its transition towards cleaner energy practices. This aligns with the government's vision of balancing energy security with environmental responsibility.

The Unaddressed GST Conundrum

Heading into the budget, a primary expectation from the oil and gas industry was the inclusion of crude oil, natural gas, petrol, and diesel under the Goods and Services Tax (GST) regime. The sector has long argued that keeping these products outside GST results in significant cost inefficiencies due to stranded taxes. Companies like ONGC pay GST on input goods and services but cannot claim input tax credit (ITC) as their final products are not under the GST framework.

The Union Budget 2026 remained silent on this critical issue. The absence of this reform means the status quo persists, and ONGC will continue to bear the burden of locked-in taxes, which impacts its cost structure and overall competitiveness. This was a significant miss from the industry's perspective, deferring hopes for a more streamlined and efficient tax system.

No Relief on Cess and Duties

Other key expectations from the upstream sector included a reduction in the cess on domestically produced crude oil and the removal of the 2.5% customs duty on Liquefied Natural Gas (LNG) imports. The budget did not announce any changes on these fronts. The cess on crude oil remains a substantial component of the cost for producers like ONGC, directly affecting their profitability, especially during periods of volatile global oil prices. The continuation of the LNG import duty also works against the government's stated goal of increasing the share of natural gas in India's energy mix to 15%.

Table: Union Budget 2026 - Key Announcements for ONGC

Indirect Benefits from Infrastructure Push

While direct fiscal benefits were limited, ONGC stands to gain indirectly from the government's sustained focus on infrastructure development. The Finance Minister proposed increasing the public capital expenditure to ₹12.2 lakh crore. The development of new dedicated freight corridors, national waterways, and improved last-mile connectivity will enhance logistical efficiency across the country. For a company with operations spread nationwide, a more robust infrastructure network translates into lower transportation costs for heavy equipment, raw materials, and finished products, leading to long-term operational savings.

Market and Investor Outlook

Investor sentiment towards ONGC following the budget is likely to be mixed. The significant funding for CCUS is a forward-looking measure that strengthens the company's long-term sustainability credentials, which is increasingly important for institutional investors. However, the lack of immediate fiscal relief through GST inclusion or cess reduction means that near-term profitability metrics may not see a significant boost from the budget. The market will likely view the budget as a strategic enabler for ONGC's green transition rather than a catalyst for immediate financial gains.

Conclusion: A Focus on the Future

The Union Budget 2026 has provided ONGC with a clear and financially supported pathway to invest in critical decarbonization technologies. The CCUS scheme is a landmark announcement that will help the company navigate the global energy transition. However, by not addressing the sector's core taxation challenges, the budget has left significant operational efficiencies unrealized for now. The government's focus is clearly on future-proofing India's energy giants for a greener world, even if it means holding back on immediate fiscal concessions.