India Cuts Fuel Duties to Tame Inflation

India, heavily reliant on imported energy, has taken decisive action to curb rising inflation by slashing excise duties on petrol and diesel. The move comes amid surging global oil prices following geopolitical tensions in the Middle East, which have exerted significant pressure on the country’s economy.

Since the joint US-Israel strike on Iran on 28 February, the Strait of Hormuz—through which around 40% of India’s crude imports pass—has effectively been closed. Consequently, international crude prices have surged past $100 per barrel, exacerbating inflationary pressures in India.

In a directive issued late Thursday, the Ministry of Finance reduced petrol excise duty from ₹13 per litre to ₹3 per litre. Diesel duties were cut even more sharply, from ₹10 per litre to zero. The government has not disclosed the expected revenue shortfall resulting from this measure.

The reduction comes at a politically sensitive time, with elections approaching next month in four states and one union territory, where fuel prices historically influence voter sentiment.

Union Oil Minister Hardeep Singh Puri noted on the microblogging platform X that, due to high global prices, oil companies were incurring losses of approximately ₹24 per litre on petrol and ₹30 per litre on diesel. The excise duty cuts aim to partially offset these losses.

Economist Madhavi Arora of ICICI Global estimates that the annual revenue loss for the government could reach ₹1.55 trillion. At current prices, the relief is expected to reduce oil marketing companies’ annual losses by 30–40%.

State-run firms, which control around 90% of India’s retail fuel market, do not automatically pass international price hikes to consumers, sometimes absorbing the increases themselves. This mechanism offers partial protection to citizens.

To complement domestic measures, India has imposed export duties of ₹21.5 per litre on diesel and ₹29.5 per litre on aviation turbine fuel. Between April last year and January this year, the country exported 14 million metric tonnes of petrol and 23.6 million metric tonnes of diesel, though most refineries have now halted exports. Reliance Industries remains the largest exporter.

Finance Minister Nirmala Sitharaman assured that there would be no shortage of petrol, diesel, or jet fuel domestically, and that marketing companies would receive support to shield citizens from price increases.

India is the world’s third-largest crude importer, and the majority of its energy consumption depends on imports, making these policy measures crucial for stabilising both consumer prices and corporate margins.

Key Details of India’s Fuel Policy Adjustments

Sources: Reuters, Ministry of Finance, ICICI Global.