State-run oil and gas companies in India have already allocated ₹46,600 crore towards capital expenditure (capex) in the first five months of FY26, accounting for 35% of their total ₹1.33 lakh crore capex target for the entire fiscal year. This early spending reflects strong momentum in India’s strategic push to expand energy infrastructure amid growing domestic demand and energy security priorities.
## Overview of Capex Spending in FY26
The Indian state-run oil companies, including Indian Oil Corporation (IOC), Oil India Limited (OIL), and others, have collectively committed substantial funds to capital projects in 2025-26. As of August, their capex outlay reached ₹46,600 crore, which is 35% of the full-year target of approximately ₹1.33 lakh crore. This front-loaded investment reflects aggressive expansion plans focused on boosting refining, exploration, and production capacity to meet rising domestic energy demand and reduce import dependence.
### Drivers Behind Early Capex Commitment
Several factors explain this substantial capex allocation early in the fiscal year:
* **Energy demand growth:** With India’s oil demand expected to double by 2045 and natural gas consumption projected to increase by nearly 60% by 2030, state companies are rapidly scaling up capacity to keep pace.
* **Strategic refinery expansions:** For example, Oil India plans to triple the capacity of its Numaligarh refinery to 180,000 barrels per day by December 2025, aligning with national goals of energy independence.
* **Production and exploration focus:** Oil India has doubled its FY26 capex estimate to ₹17,000 crore, aiming at boosting crude oil and natural gas output, as well as participating in overseas projects such as the Mozambique LNG initiative.
* **Lower oil prices and stronger margins:** Reduced crude prices and improved refining margins are enabling oil marketing companies to maintain healthy earnings, which supports the funding of large capital projects.
## Sector-wise Capex Allocation and Impact
### Refining Capacity Expansion
Indian refiners are front-loading their capital investments to upgrade existing facilities and build new ones. The refining capacity has recently increased modestly, from 256.8 million metric tonnes per annum (MMTPA) in FY24 to 258.1 MMTPA in FY25, with expectations to reach 667 MMTPA by 2040. State-run entities like IOC plan capital expenditures exceeding ₹28,000 crore for major projects in FY26 alone. This expansion supports domestic fuel demand growth and export potential.
### Exploration and Production (E&P) Investments
A significant share of capex is directed toward oil and gas exploration and production. Oil India’s increased outlay targets boosting crude oil production by around 15% over three years and natural gas supplies. Exploration includes participation in international projects to diversify supply sources, exemplified by the Mozambique LNG development. These investments are crucial as domestic production stagnates, and import dependence remains high at nearly 89%.
### Infrastructure and Strategic Reserves
Investments also focus on infrastructure, including pipelines, storage facilities, and strategic petroleum reserves. India is enhancing its strategic oil reserves to mitigate supply shocks and high price volatility in global markets. Rationalization and expansion of distribution networks for LPG and auto fuels are part of capex plans, improving operational efficiency and reducing losses.
## Financial and Economic Implications
### Earnings and Profitability Outlook
The current fiscal year’s capex build-up coincides with improved financial prospects for oil marketing companies due to lower global oil prices and reduced subsidy burdens on LPG. These factors contribute to higher auto fuel marketing margins and lower under-recovery on LPG cylinders. Despite challenges like refining margin volatility and inventory losses booked earlier, the outlook for sector profitability remains robust. Moreover, lower crude prices reduce working capital requirements, diminishing borrowing costs for these companies.
### Economic Growth and Energy Security
Capital expenditure acceleration in the oil and gas sector aligns with India’s broader economic growth and energy security policies. Expansion of refining and production capabilities supports domestic fuel supply, job creation, and industrial growth. Given the goal of reducing import dependency—currently about 89% for crude oil—capex investments are vital for transitioning toward a more self-reliant energy ecosystem. These investments also strengthen India’s stance in global energy markets amid geopolitical uncertainties.
## Challenges and Future Outlook
While the capex spend is significant, challenges remain:
* **Limited near-term production growth:** Domestic oil and gas production growth is modest due to aging fields and delays in new discoveries, keeping import dependence high.
* **Geopolitical risks:** Sanctions, trade disruptions, and changing crude quality mixes pose risks to supply chains and export margins.
* **Sustainability considerations:** Balancing investments in fossil fuel infrastructure with growing commitments to clean and renewable energy transitions.
Nevertheless, the early pace of capital spending demonstrates strong commitment from state-run companies to bolster India’s energy infrastructure, ensuring supply security and supporting long-term growth.
## Conclusion
The ₹46,600 crore capex spent by state-run oil and gas companies till August 2025, comprising 35% of their fiscal year funding goals, underlines a robust and proactive expansion strategy to meet India’s fast-growing energy needs. With directed investments in refining capacity, exploration, production, and infrastructure, these companies are steering the energy sector towards enhanced self-sufficiency and economic resilience. Despite supply constraints and geopolitical uncertainties, this capital deployment is essential for securing India’s energy future and achieving national ambitions of energy independence and industrial growth.
