By Nantoo Banerjee
The central excise duty cut on petrol and diesel oil to help petro-fuel producers and marketeers partly cover their losses on account of the rising crude oil import prices is an internal government matter. It is not meant to have any impact on retail prices which continue to be very high and uneven across the country. If the current global crude market situation along with rising shipment and insurance costs continue, India’s retail consumers may soon have to pay much higher prices of petrol and diesel. States continue to levy varied value added tax (VAT) and sales taxes, with some, like Himachal Pradesh, even implementing new welfare-based cesses. These taxes vary significantly across different states. Lately, the Himachal Pradesh government approved a specific “orphan and widow cess” on petrol and diesel to fund welfare schemes. The current tax structure includes Basic Excise Duty, Agriculture Infrastructure and Development Cess (AIDC), and Road and Infrastructure Cess.
At the consumer level, petroleum products (petrol/diesel) in the country are taxed heavily by both central and state governments, accounting for roughly 50-55 percent of the retail price. The Centre levies excise duty and cesses, while states impose VAT (10–35 percent or fixed amount), leading to major price variations across states. The central government’s basic excise duty is uniform across the country. It also imposes special additional excise duty (SAED) and agriculture infrastructure and development cess. State government levies by way of VAT/sales tax vary significantly from state to state, typically 15 percent to even above 30 percent on top of the base price and excise duty. Some states such as Andhra Pradesh adds additional road development cess. There are other charges too. They include dealer commissions which cover retail profit margins, workers’ wages and maintenance costs. Petrol and diesel are not covered under the Goods and Services Tax (GST) framework. As a result, total levies vary wildly, with petrol prices per litre exceeding Rs.109 in some states. Petrol and diesel taxes and levies have been contributing significantly to the revenue receipts of both central and state governments.
The central government may have taken a hit on its revenue on account of the latest excise duty cut on petrol and diesel, but it is unlikely to have any favourable impact on the economy, at least for now. According to former deputy managing director of the International Monetary Fund (IMF), Gita Gopinath, India’s economic outlook is facing fresh uncertainty as global tensions push oil prices higher. She has warned that the impact on India’s growth could be “closer to half a percent” if current trends continue. That warning highlights how deeply global energy markets influence domestic stability. Higher crude prices mean rising fuel costs, inflation pressure, and stress on household budgets. At the same time, remittances from Indians working in the Gulf could also face disruption if the conflict drags on. Gopinath called the current moment a “very uncertain outlook” and a “tough time to be a policymaker,” as governments juggle multiple economic risks. Her solution is rooted in domestic strength — improving reforms, boosting resilience, and keeping India’s economic fundamentals strong. Because in a volatile world, internal stability remains the strongest defence against external shocks.
The petroleum minister’s recent statement seems to rather carry a political overtone. The minister said in a post on X that the government “has taken a huge hit on its taxation revenues to ensure very high losses of oil companies (approximately 24 Rs/litre for petrol and 30 Rs/litre for diesel) at this time of sky-high international prices are reduced. 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. My gratitude to Hon’ble PM Narendra Modi Ji and Hon’ble FM @nsitharaman Ji for this very timely, bold and visionary decision!”
In fact, for consumers and the economy, in particular, the government has done a much better job by acting fast and smart to ensure foreign crude supplies to India, which is nearly 90 percent dependent on imports, following massive uncertainty of oil and gas coming from West Asia. It has contacted far and wide – from 20,000 kms away Argentina to all-weather-friend Russia – to ensure normal supplies as the country grapples with a severe liquified petroleum gas (LPG) shortage triggered by the ongoing Gulf war. The disruption in maritime traffic through the Strait of Hormuz has significantly impacted India’s energy supply chain, forcing New Delhi to accelerate efforts to diversify sourcing. Argentina has emerged as an unexpected yet crucial partner. During the first quarter of this year, Argentina exported 50,000 tonnes of LPG to India. An additional 11,000 tonnes were dispatched on March 5, underscoring Buenos Aires’ willingness to support India during the crisis.
Russia continues to be a key supplier to help India mitigate a potential fuel crisis. Russia has expressed readiness to meet India’s energy needs, including LPG, crude oil, and LNG, to counter shortages from the Gulf region. Recently, Russian tankers were redirected to India to provide immediate relief. This support reinforces Russia’s position as a reliable energy partner for India, helping to diversify imports away from high-risk areas. Around 80-90 percent of India’s LPG imports historically originate from West Asia. Escalating US-Iran hostilities have threatened these supply chains, prompting India to look for alternatives. India is proactively sourcing LPG from Russia, as well as the US and Japan, to ensure domestic availability for its 33 crore customers. The government has activated 24×7 control rooms, increased domestic LPG output, and activated strategic reserves to manage the crisis. This intervention is expected to stabilize LPG prices and supply, which had been under pressure due to the conflict-related shipping disruptions.
It must be admitted that the government is managing the potential fuel crisis well by leveraging roughly 60–74 days of secured stocks (crude and products) and diversifying import sources to mitigate West Asia conflict risks. The government has assured stable supplies, dismissed shortage fears, and is acting against hoarding, even as minor, isolated panic-buying occurred. Oil refineries are operating at over 100 percent capacity utilisation, with secured procurement for the next two months. The government is focusing on quick, 24-hour approvals for piped natural gas (PNG) to reduce reliance on imported LPG. There is no immediate fear of oil and gas supplies at the retail level although their future prices continue to be a concern. (IPA Service)
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