As global crude oil prices surge amid geopolitical tensions, India has taken a different route: cutting taxes and absorbing costs instead of passing them on to consumers. While this has helped keep petrol and diesel prices stable, it raises a key question: what is the economic cost of this relief?
Here’s a closer look at how the excise duty cut is shaping the Indian economy, and how long this strategy can be sustained.
Excise Duty Cut: Cushioning the Consumer
To protect households from rising global fuel prices, the government has reduced excise duty on petrol and diesel by Rs 10 per litre.
This has brought the central excise duty on petrol down to Rs 3 per litre, while diesel currently carries no central excise duty. The move has helped keep retail fuel prices stable despite crude oil rising sharply from around $70 per barrel to nearly $122 per barrel.
The government’s approach has been to absorb the global price shock rather than pass it on to consumers, even as fuel prices have risen significantly in several parts of the world.
A Costly Shield: Impact on Government Finances
While the excise duty cut offers immediate relief to consumers, it comes at a high fiscal cost.
Lower tax collections from fuel, combined with elevated global crude prices, mean the government is taking a direct hit on its revenues. At the same time, oil marketing companies are facing under-recoveries of around Rs 24 per litre on petrol and nearly Rs 30 per litre on diesel.
This dual pressure, reduced tax inflows and rising subsidy-like burdens, is beginning to strain the broader fiscal framework.
Why India Chose This Route
Globally, many countries have passed on higher fuel costs to consumers, with prices rising by as much as 30-50 per cent in some regions. In contrast, India has opted to absorb part of the impact to protect households from sharp price shocks.
This strategy helps maintain consumption levels and prevents a sudden spike in inflation, particularly in transport and logistics costs that feed into everyday prices.
Short-Term Relief, Long-Term Trade-Off
Keeping fuel prices stable has clear short-term benefits. It supports consumer spending, helps control inflation and provides stability to businesses dependent on fuel.
However, the longer-term trade-offs are becoming more visible. Sustained high crude prices could widen the fiscal deficit and increase pressure on public finances, especially if revenues remain subdued.
How Long Can This Continue?
The sustainability of the current approach hinges on global oil prices and the duration of geopolitical tensions.
If crude prices remain elevated, maintaining low excise duties and stable pump prices could become increasingly difficult. This may eventually require policy adjustments, whether through price revisions or additional fiscal measures.
No ‘Energy Lockdown’, But Concerns Addressed
Amid rising chatter around an “energy lockdown”, the government has clarified that no such step is being considered.
Union Petroleum Minister Hardeep Singh Puri said the Centre is taking all necessary measures to ensure uninterrupted availability of fuel and essential supplies, adding that rumours of any lockdown are unfounded and should not create panic.
The global situation remains in flux, and we are closely monitoring developments across energy, supply chains, and essential commodities on a real-time basis.
Under the leadership of Hon’ble PM @narendramodi Ji, all necessary steps are being taken to ensure uninterrupted…
— Hardeep Singh Puri (@HardeepSPuri) March 27, 2026
India’s decision to cut fuel taxes has insulated consumers from the immediate impact of a global energy shock. But this relief comes with a cost, one that is now being absorbed by government finances and oil companies.
With no “energy lockdown” on the horizon, the real challenge lies in balancing consumer protection with fiscal sustainability in an uncertain global environment.
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Input By : Varun Bhasin
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