The global oil market has witnessed a marked downward trend since the past few weeks when Brent crude prices plummeted to their lowest level since 2021. This situation has arisen mainly owing to heightened unrest in trade relations between the United States and China, giving rise to fears of recession and dwindling demand for crude oil. Also aiding the malaise is the unexpected decision of the OPEC+ alliance to cut oil production, which supports the supply tendency, thereby exerting downward pressure on prices.
Notably, crude oil prices have declined sharply in the international market, yet Indian consumers have found no relief from high domestic fuel prices. As on April 7, 2025, no change has been made in petrol and diesel prices across Indian cities, which are pegged at ₹94.72 per liter for petrol and ₹87.62 for diesel in Delhi.
The Increased Excise Duty by the Government
Adding fuel to the fire, the Indian government has raised excise duties on petrol and diesel by ₹2 with effect from April 8, 2025. The move raises the Special Additional Excise Duty (SAED) on petrol to ₹13 per liter from ₹11, and on diesel to ₹10 per liter from ₹8. Union Oil Minister Hardeep Singh Puri reassured the public that the consequent increase would not be passed on to the consumers but the extra resource generated would be used to partially offset the under-recoveries of oil marketing companies (OMCs) for the sale of domestic cooking gas (LPG).
Impact on Oil Marketing Companies
Financial pressure resulting from selling LPG below their market price weighs on Indian Oil Marketing Companies like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL). An increase in excise duty is expected to yield close to ₹32,000 crore, which the government intends to use to compensate these companies for the losses. Even with these additional taxes, the government continues to say that OMCs will bear the tax burden and that they will not increase petrol and diesel retail prices.
Consumer Perspective
The Indian consumer continues to protest that prices of fuel have been glued to a static list despite severe cuts in crude oil price worldwide. Back in August 2014, petrol was about ₹73 per liter in India when crude appreciated at $102 barrel. In contrast, by August 2024, crude had fallen to $78 per barrel, even as prices of petrol rose to ₹95. This increased suspicion regarding the workings behind fuel pricing in the country.
Factors Influencing Domestic Fuel Prices
There are many variables that keep fuel prices elevated in India despite the international prices of crude oil falling.
- Taxation Structure: Both central and state taxes constitute a large portion of the retail price of fuel in India. For instance, the increase in excise duty imposed recently exemplifies how government policies directly affect fuel prices.
- Currency Fluctuations: In the event of depreciation of the rupee against the US dollar, the effects of import costs for oil may offset the benefits of decreasing crude prices.
- Under-Recoveries of OMCs: Such oil marketing firms usually sell some oil products, like LPG, at subsidized prices, thereby incurring losses. Under the scenario of the present definitions, government revenues are adjusted with tax on fuels to recompense these firms.
- [Decon] Infrastructure and distribution costs: Also included in the retail price of petroleum are costs related to refining, transporting, and distributing petroleum.
Political Responses:
The opposition parties have criticized the government's decision on excise duty hikes while international oil prices hit a low. They said that instead of passing the reduced crude prices through to consumers, revenue should be increased by the government. Trinamool Congress leadership in the parliament Derek O'Brien has pointed out the contradiction in the government's logic of raising prices at the domestic level when global oil prices are sagging with an example: "Saudi Arabia's aces crumbled against OPEC's lower production."
Future Expectations
Oil Minister Hardeep Singh Puri has indicated that there could be a likely expectation of petrol and diesel price cuts in the future, should the pattern of low crude prices persist. Nevertheless, he has "wait and watch" stance because any cuts in price would be subject to how low crude prices hold in the international market. Advise Indian consumers to prepare for an extended period of high fuel prices. The interplay of global market dynamics, taxation policies here in India, and economical considerations influences liquid fuels like petrol and diesel prices in the country.
