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India has slashed excise duties on fuel, shielding consumers, state-run fuel retailers and the overall economy from the impact of surging global oil prices.
In a notification issued late on Thursday, the country’s finance ministry reduced the special excise duty on petrol to 3 rupees ($0.03) per litre, from 13 rupees earlier, while diesel had an even sharper drop to zero, from 10 rupees, with the revised rates taking immediate effect.
Brent crude has surged nearly 50 per cent since late February, fuelled by the US-Israeli war with Iran and the near-closure of the Strait of Hormuz.
The latest move comes as crude markets remain volatile due to supply disruptions linked to the Strait of Hormuz, a crucial route for global oil shipments, raising concerns for import-dependent economies such as India.
The reduction in fuel duties helps state-owned oil companies to keep prices steady at the pump. Retailers such as Hindustan Petroleum, Indian Oil Corporation and Bharat Petroleum have faced mounting losses with the climbing crude prices.
Indian Petroleum Minister Hardeep Singh Puri said the government had opted to protect households from a sharp increase in fuel prices, even at the cost of its own finances.
“The government had two choices – either increase prices drastically for citizens or bear the burden itself,” he said, adding that New Delhi chose to take the hit to shield consumers from global volatility.
“Government has taken a huge hit on its taxation revenue to ensure very high losses of oil companies, approximately 24 rupees a litre for petrol and 30 rupees a litre for diesel, at this time of sky high international prices, are reduced,” Mr Puri said in a post on X.
Fiscal impact
Economists estimate the fiscal impact of the move could be substantial, with analysts cautioning that the immediate benefit for consumers may be limited.
Madhavi Arora, an economist at Emkay Global, projects a potential annual revenue loss of nearly 1.55 trillion rupees, according to a Reuters report. The duty cuts would absorb about 30 per cent to 40 per cent of annual losses of oil marketing companies on auto fuel at current prices, she said.
However, the government has not provided an official estimate of annual revenue loss.
India, the world’s third-largest oil consumer, imports more than 90 per cent of its crude requirements, making it particularly vulnerable to geopolitical shocks and supply disruptions.
With global oil prices still elevated, much of the latest tax relief will probably offset losses incurred by fuel retailers rather than translate into lower pump prices in the near term, according to analysts.
Key challenges
The country has also been dealing a with liquefied petroleum gas (LPG) crisis and supply chain shocks. This has led to cooking fuel scarcity, rising food prices, and shift to alternatives like induction or firewood.
Delays in supply have created opportunities for black-marketing of domestic cylinders. Residents in some Indian localities say a domestic LPG refill cylinder, which normally costs around 900 rupees to 1,000 rupees, is being sold illegally for 1,800 rupees to 2,500 rupees.
However, despite the challenges and the volatility, the government has taken steps to reassure markets that fuel supplies remain sufficient, with contingency measures in place to ensure the availability of key energy products.
Finance Minister Nirmala Sitharaman said in a post on X the latest move to cut excise duties on fuel will “ensure adequate availability of these products for domestic consumption”.
Rupee hits record low
The Indian rupee also hit a record low on Friday past the 94-per-dollar mark, as a result of the energy supply crisis. The rupee fell to 94.6525 per dollar, down 0.6 per cent on Friday morning, eclipsing its previous all-time low of 93.98 rupees hit earlier this week. The currency has declined about 4 per cent since the war began on February 28, and is down more than 10 per cent since March 31, 2025, according to a Reuters report.
The drop puts the currency on track for its first fiscal-year drop in over a decade. India’s fiscal year runs from April to March.
