India's central government is considering an increase in fuel prices due to rising global crude oil costs and financial losses at state-run firms.
The potential hike comes as the government balances the need to sustain oil marketing companies (OMCs) against the risk of increasing inflation for consumers. If implemented, the move would shift the burden of global market volatility onto the domestic public.
Global crude oil prices have been averaging near $100 per barrel [1]. This surge has placed significant financial strain on OMCs, which have reported losses of approximately ₹30,000 crore per month [2]. Other reports indicate these losses average ₹600 crore per day [7].
While global petrol and diesel prices have risen by more than 20 percent [4], the domestic increase in India has been limited to under nine percent [5]. To further mitigate costs, the government previously reduced the excise duty on petrol and diesel by ₹10 [6].
Despite these pressures, petrol and diesel prices have remained steady nationwide in recent periods [2]. However, the government began reviewing a potential price hike before May 15, 2024 [3]. The decision to raise prices appears unavoidable as the gap between international procurement costs and domestic retail prices widens, a situation that continues to drain the reserves of state-run oil firms.
The government said the current financial trajectory of OMCs is unsustainable. The administration is now weighing how to adjust pricing without triggering widespread economic instability.
“Global crude oil prices have been averaging near $100 per barrel”
The tension between maintaining low retail prices for political stability and ensuring the solvency of state-run oil companies is reaching a breaking point. Because India imports a vast majority of its crude oil, it is highly vulnerable to global price shocks. A price hike would likely increase transportation costs and consumer prices across the country, potentially offsetting the benefits of the ₹10 excise duty reduction.
