Shale Gas Development in India: What Fiscal Model Should India Adopt to Prevent this Asset from Becoming a Burden?

Abstract

Shale gas is being hailed as the next big thing. The 21st century belongs to unconventional and clean energy sources and there is a lot of expectation from the shale gas industry to ease the pressure on demand for energy not only in India but also in several countries around the world. Unconventional gas has tremendous potential to significantly contribute to the demand for energy provided certain barriers to its assimilation are removed. One of the barriers which this paper seeks to address is the absence of a fiscal policy regulating the industry in India. A lack of legal framework is a major hindrance to any developmental activities: a successful exploitation of shale gas will be a function of the policy. The US shale gas industry flourished under good geological conditions, tax breaks, existence of a mature service industry and the landowners profiting from the use of their land. Whether these favourable conditions can be replicated elsewhere is a moot point. The objective of this paper is to identify the ideal fiscal model for India and its shale gas sector. To achieve this objective the paper will give a basic background on the shale gas industry in India before examining the fiscal regimes in North America: U.S. and Canada. This examination will help the author in identifying the lessons to be learnt and the recommendations that can be given to ensure the fiscal model in India avoids similar pitfalls or emulates their successes.