The government decided to swallow the loss itself rather than pass it to consumers
As global crude prices nearly doubled in a matter of weeks — driven by geopolitical crisis in West Asia — governments around the world passed the burden to their citizens at the pump. India chose a different path: absorbing losses of up to Rs 30 per litre through steep excise duty cuts, trading fiscal revenue for domestic price stability. It is a wager that places the welfare of ordinary consumers above the government's own balance sheet, and its sustainability rests on how long the storm endures.
- Global crude oil surged from $70 to $122 per barrel in weeks, triggering fuel price increases of 30 to 50 percent across Southeast Asia, Africa, North America, and Europe.
- India's refineries are bleeding — absorbing losses of Rs 24 per litre on petrol and Rs 30 per litre on diesel — as they sell fuel well below what international markets demand.
- The government slashed petrol excise duty from Rs 13 to Rs 3 per litre and eliminated diesel excise duty entirely, forgoing enormous tax revenue to keep pump prices steady.
- An export tax on refined fuel has been introduced as a partial counterweight, capturing some of the windfall that exporters would otherwise pocket from elevated global prices.
- The policy is framed as a principled, ongoing commitment — not a stopgap — but its durability hinges on how long crude prices stay elevated and whether offsetting revenues prove sufficient.
When global crude oil prices climbed from roughly $70 to $122 a barrel in the span of a month, the world's fuel pumps felt it almost immediately. Southeast Asia, Africa, North America, and Europe all saw price increases ranging from 20 to 50 percent. India faced the same pressure — and made a deliberate choice to face it alone, shielding its consumers from the shock.
Union Petroleum Minister Hardeep Puri laid out the government's arithmetic plainly: excise duty on petrol has been cut from Rs 13 to Rs 3 per litre, and diesel excise duty has been reduced to zero from Rs 10. The result is that Indian refineries are selling fuel at prices far below global market rates, absorbing losses of approximately Rs 24 per litre on petrol and Rs 30 per litre on diesel. The government, by forgoing that tax revenue, is effectively underwriting those losses.
Puri framed the decision as a continuation of a commitment that began when Russia's invasion of Ukraine first destabilized global energy markets — a principled stand to protect ordinary Indians from forces beyond their control. The choice, as he presented it, was binary: raise prices sharply, as every other major economy has done, or absorb the burden domestically. Prime Minister Modi's government chose the latter.
To partially offset the fiscal damage, the government has imposed an export tax on refined petrol and diesel sold to foreign markets — a mechanism designed to capture some of the revenue lost through the excise cuts. It will not fully close the gap, but it introduces a market signal: domestic consumers are insulated, while exporters must reckon with the global price reality. How long India can sustain this posture depends on the duration of the West Asia crisis and whether the export tax generates enough to keep the policy viable.
Global crude oil prices have nearly doubled in a month, climbing from around $70 a barrel to $122, and the shock has rippled through fuel pumps worldwide. In Southeast Asia, petrol and diesel prices jumped 30 to 50 percent. North America saw increases of roughly 30 percent. Europe absorbed a 20 percent hit. Africa faced a 50 percent surge. India, facing the same international pressure, made a different choice: the government decided to swallow the loss itself rather than pass it to consumers at the pump.
On Friday, Union Petroleum Minister Hardeep Puri laid out the arithmetic of that decision. The government has cut the excise tax on petrol to Rs 3 per litre, down from Rs 13—a reduction of 10 rupees per litre. Diesel excise duty has been slashed to zero, eliminated entirely from its previous level of Rs 10 per litre. These are not small adjustments. They represent a deliberate choice to forgo tax revenue in order to keep fuel affordable for ordinary Indians.
The cost of that choice is substantial. Oil refineries in India are absorbing losses of approximately Rs 24 per litre on petrol and Rs 30 per litre on diesel as they sell fuel at prices far below what global markets would dictate. The government, through its excise duty cuts, is effectively subsidizing those losses—taking a direct hit to its own finances to maintain price stability at the pump. Puri framed this as a continuation of a four-year commitment that began when Russia invaded Ukraine and global energy markets first destabilized.
The minister presented the decision as a binary choice: either raise fuel prices sharply, as every other major economy has done, or absorb the financial burden domestically. Prime Minister Narendra Modi's government, according to Puri, chose the latter. The language was deliberate—this was framed not as a temporary measure but as a principled decision to shield Indian citizens from international volatility, a commitment to protecting the common person from forces beyond their control.
But the government is not simply absorbing losses without any offsetting measure. An export tax has been imposed on refined petrol and diesel heading to foreign markets. As international prices have skyrocketed, any refinery exporting these products abroad must now pay a tax to the government. This mechanism is designed to recover some of the revenue lost through the excise duty cuts, though it is unlikely to fully offset the fiscal impact. The export tax creates a secondary market signal: domestic consumers are shielded, but exporters face a cost that reflects the global price reality.
The timing matters. The West Asia crisis—the underlying geopolitical event driving crude prices upward—has created genuine uncertainty in global energy markets. India, as a major importer of crude oil, is particularly exposed to these swings. The government's decision to absorb rather than transmit these shocks represents a deliberate economic policy choice, one that prioritizes domestic price stability over fiscal consolidation. Whether this approach is sustainable depends on how long crude prices remain elevated and whether the export tax mechanism generates sufficient offsetting revenue.
Notable Quotes
The Modi government decided to take a hit on its own finances to safeguard the Indian citizen from international volatility— Union Petroleum Minister Hardeep Puri
Unlike other economies where domestic fuel prices have been raised following global costs going through the roof, there has been no rise in India— Hardeep Puri
The Hearth Conversation Another angle on the story
Why did the government choose to cut excise duty rather than let prices rise naturally?
Because every other country was passing the shock directly to consumers—30, 40, 50 percent increases. India decided the political and social cost of that was too high. The government took the hit instead.
But that's a massive revenue loss. How does the government justify that fiscally?
They're not ignoring the fiscal impact. The export tax on refined products is meant to recover some of it. But you're right—it won't fully offset the loss. This is a choice to prioritize stability over balanced budgets, at least in the short term.
Is this sustainable if crude stays above $100 a barrel?
That's the real question. If prices normalize, the losses shrink and the policy looks wise. If they stay elevated, the government will face pressure to either raise prices or find other revenue sources.
What does this tell us about how India sees its role in protecting citizens?
It suggests the government views price shocks as something the state should absorb, not something citizens should bear. It's a particular vision of what government is for—a buffer against global forces, not a neutral administrator of market prices.
Are oil companies happy about this?
They're being forced to sell at a loss, so no. But the government is essentially subsidizing those losses through the excise cuts. The companies aren't going bankrupt; they're just not making the windfall profits they would in a free market.