With crude oil prices soaring to $135 a barrel, it is necessary to levy some tax on windfall profits of all the private and joint venture oil-producing companies extracting oil and gas in India. When these contractors participated in the New Exploration Licensing Policy (NELP), none of them could have envisaged crude oil prices beyond $30 a barrel. It would be a failure on the government's part to allow upstream contractors additional gain of over $100 a barrel without any extra work. Many other countries have gone ahead and renegotiated their contracts with a threat of imposing windfall taxes on such profits. This article discusses briefly the microeconomic factors that come into this scenario.

Crude oil is the most crucial commodity across the globe. Crude and its various products are used universally in the production of almost everything; directly or indirectly. International crude prices have reached a peak of $135 a barrel—a shocking percentage change of 200% in the crude prices since 2007 which has left all the countries, including India, in a quandary. India is not a major oil-producing country and meets most of its oil requirements through import. Inflation has already been affected by the steep rise in crude prices. Besides, it has become very necessary to see the intricate nuances of the results of the rising oil prices on the few oil-producing Indian companies and the economy as a whole. While doing so, one of the microfactors that come into the picture is the windfall profits tax.

Windfall profit tax is a tax levied on corporates or a particular industry which gain/gains from a sudden surge in profits. These profits may arise from a range of many external factors like a change in the country's economic policy, change in the world economic trends in that industry or a discovery of a natural resource. The United States passed a legislation to tax the oil companies when there was a sudden surge in the oil prices in 1980. However, it was later withdrawn.

Treasury Management Magazine, Windfall Profit Tax, WPT, New Exploration Licensing Policy, NELP, Crude Oil, International Crude Prices, Microeconomic Factors, Indian Oil Companies, Public Sector Companies, Reliance Industries Limited, Export Oriented Unit, EOU, Current Energy Policy.