New Delhi, March 27 – The government has reduced excise duty on petrol and diesel by ₹10 per litre, averting a retail price hike that had become necessary due to soaring global oil prices.
The reduction in special additional excise duty on petrol from ₹13 to ₹3 per litre and on diesel from ₹10 to zero will not lead to any change in retail pump prices, as the reduction will offset fuel losses – estimated by Oil Minister Hardeep Singh Puri at ₹24 per litre for petrol and ₹30 for diesel, and by his ministry at ₹26 and ₹81.90, respectively.
Alongside, the government has imposed an export duty of ₹21.50 per litre on diesel and ₹29.50 per litre on aviation turbine fuel (ATF), reinstating a levy first introduced in July 2022 to curb windfall gains by refiners following Russia's invasion of Ukraine and later withdrawn in December 2024.
However, unlike last time, there is no windfall tax levied on domestically produced crude oil by firms like ONGC.
Prices of crude oil – the raw material for making petrol and diesel – have increased from around USD 70 per barrel before the start of the conflict in the Middle East to over USD 100, said Sujata Sharma, Joint Secretary in the Ministry of Petroleum and Natural Gas.
"The government had two options – pass on the increase to consumers (by way of an increase in petrol and diesel prices) or take a hit (by cutting excise duty). The government chose the latter," she told reporters.
Fuel prices in India have remained largely unchanged since April 2022 despite geopolitical shocks – from the Russia-Ukraine war to the Middle East crisis – that have driven sharp swings in global oil prices. The country depends on imports for 88 per cent of its crude oil needs.
In contrast, fuel prices have risen by 30-50 per cent across South and Southeast Asian countries, 30 per cent in North America, and 20 per cent in Europe since the onset of the current crisis.
CBIC Chairman Vivek Chaturvedi said the windfall tax on exports will result in a gain of about ₹1,500 crore in the first fortnight while the government will have to forgo over ₹7,000 crore in revenue because of the excise duty cut.
Explaining the rationale for levy of the export tax in form of a special additional excise duty (SAED), he said the surge in international prices had created an incentive for refiners to export and this move will help make available fuel for domestic consumption.
Sharma said the 2022 requirement for refiners to sell 50 per cent of petrol exports and 30 per cent of diesel exports in the domestic market remains in place.
Chaturvedi said the export tax will be reviewed fortnightly – as was the practice previously – to align the duty with prevailing rates.
The government can levy up to ₹50 per litre SAED on ATF.
However, the levy will not be applicable on fuel exported by public sector oil companies to Nepal, Bhutan, Bangladesh, and Sri Lanka. It will also not apply to ATF supplied to foreign going aircrafts.
The excise duty on petrol has been cut from ₹21.90 per litre to ₹11.90 and that on diesel from ₹17.80 a litre to ₹7.80, he said.
The war in the Middle East has not just led to a spike in international oil prices but also disrupted global energy supply chains. While India has managed to secure crude oil lost in the blockage of a critical shipping lane of Strait of Hormuz, cooking gas LPG supplies have been disrupted.
State-owned oil companies have not just been absorbing the impact of high oil prices but have also managed to raise domestic LPG production by 40 per cent by diverting streams they previously used to make valuable petrochemicals. This led to a situation of record losses.
Puri in a post on X put the "very high losses" at ₹24 per litre for petrol and ₹30 for diesel.
His ministry, however, in a statement gave rationale for the excise duty cut and said, "At current international crude prices, under-recoveries (difference between cost and retail selling price) stand at approximately ₹26 per litre on petrol and ₹81.90 per litre on diesel. The combined daily under-recovery being absorbed by oil marketing companies (OMCs) is approximately ₹2,400 crore."
After the reduction in duty, the incidence of excise on petrol will be ₹11.90 per litre (₹1.40 basic excise duty, ₹3 special additional excise duty, ₹2.50 agriculture infrastructure and development cess and ₹5 on road and infrastructure cess).
On diesel, the incidence will be ₹7.80 per litre (₹1.80 basis excise duty, ₹4 agriculture infrastructure and development cess and ₹2 road and infrastructure cess).
Considering 175 billion litres of auto fuel sales annually (115 billion litres of diesel and 60 billion litres of petrol), the impact of the duty cut would be ₹1.75 lakh crore annually, according to industry estimates.
The first signs of stress came when Nayara Energy, the country's largest private fuel retailer, raised petrol price by ₹5 per litre and diesel by ₹3 a litre on Thursday. Petrol at Nayara pumps now costs ₹100.71 a litre and diesel costs ₹91.31 per litre.
State-owned fuel retailers, who control about 90 per cent of the market, continue to keep rates unchanged at ₹94.77 a litre for petrol in Delhi and ₹87.67 per litre for diesel.
Finance Minister Nirmala Sitharaman in a post on X said the reduction in excise duty "will provide protection to consumers from rise in prices".
The government, she said, has always ensured that citizens are protected from vagaries of supply and costs of essential goods.
"Further, duties have been imposed on exports of diesel at ₹21.5 per litre and on ATF at ₹29.5 per litre. This will ensure adequate availability of these products for domestic consumption," she added.
Oil Minister Hardeep Singh Puri said international crude prices have gone through the roof in the last one month from around USD 70 dollars per barrel to around USD 122.
"Consequently, petrol and diesel prices for consumers have gone up all over the world. Prices have increased by around 30-50 per cent in Southeast Asian countries, 30 per cent in North American countries, 20 per cent in Europe and 50 per cent in African countries," he said, adding that the government had two choices -- either increase prices drastically or bear the brunt on its finances.
In keeping with the commitment of the last four years since the conflict in Russia-Ukraine started, the government decided to take a hit on its own finances again to safeguard the Indian citizens.
"The government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies (approximately ₹24 per litre for petrol and ₹30 a litre for diesel) at this time of sky high international prices are reduced," he said.
"At the same time, export tax has been levied as international prices of petrol and diesel have skyrocketed and any refinery exporting to foreign nations will have to pay export tax."
Puri said the global situation remains in flux, and the government is closely monitoring developments across energy, supply chains, and essential commodities on a real-time basis.
"All necessary steps are being taken to ensure uninterrupted availability of fuel, energy, and other critical supplies for our citizens. We are fully prepared to handle emerging challenges," he said.
India, he said, has consistently demonstrated resilience in the face of global uncertainties, and we will continue to act in a timely, proactive, and coordinated manner.
"Rumours of a lockdown in India are completely false. Let me state this clearly, there is no such proposal under consideration by the Government of India," he said. "In such times, it is important that we remain calm, responsible, and united. Attempts to spread rumours and create panic in such a situation are irresponsible and harmful."