Source Credit : Portfolio Prints
India’s tax revenues have taken a significant hit after the government cut central excise duties on fuel, Petroleum and Natural Gas Minister Hardeep Singh Puri said on Friday.
Late Thursday, New Delhi reduced excise duties on petrol and diesel by ₹10 per litre each to shield consumers from rising pump prices, as the conflict involving Iran disrupts global energy supplies.
Global crude prices have surged sharply over the past month—from around $70 per barrel to nearly $122—Puri noted in a post on X.
He said the government has chosen to absorb the impact of rising energy costs rather than pass them on to consumers. The tax cuts will also help reduce losses for oil marketing companies, currently estimated at about ₹24 per litre for petrol and ₹30 per litre for diesel.
According to an official notification, excise duty on petrol has been cut to ₹3 per litre from ₹13, while diesel duties have been reduced to zero from ₹10 per litre.
To safeguard domestic supply, the government simultaneously raised duties on diesel exports to ₹21.5 per litre and on aviation turbine fuel to ₹29.5 per litre. Finance Minister Nirmala Sitharaman said the move was aimed at ensuring adequate availability of fuel for domestic consumption.
“This will provide protection to consumers from rising prices,” Sitharaman said in a post on X.
As the world’s third-largest oil importer and second-largest liquefied petroleum gas consumer, India is facing mounting pressure from higher energy costs and panic buying, following supply disruptions linked to the closure of the Strait of Hormuz.
“The longer supply disruptions persist, with oil prices above $100 per barrel, the greater the structural risks to the economy—especially if policy responses are not carefully managed,” said Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence, in comments to CNBC.
Raising domestic fuel prices could push inflation higher and slow economic growth, while continuing to absorb costs would widen the fiscal deficit—highlighting the difficult trade-off facing policymakers.
Early signs of strain are already emerging in macroeconomic indicators. Data from HSBC showed India’s private-sector activity slowed in March to its weakest level since October 2022, weighed down by softer domestic demand, volatile markets, and rising inflation. Cost pressures are now nearing a four-year high.
If oil prices stabilize in the $85–$95 range after the conflict, India could face additional outflows of $40–$50 billion—equivalent to more than 1% of GDP—according to Pankaj Murarka, CEO and CIO of Renaissance Investment Managers, speaking to CNBC’s “Inside India.”
Such pressures could reduce India’s economic growth to around 6.5%, down from an earlier estimate of 7.2%, he added.
