TNI Bureau: In a crucial policy move, the Government of India has reduced excise duty on petrol and diesel at a time when global crude oil prices remain elevated and volatile. While such a decision is often perceived as direct relief for consumers, the current cut is largely aimed at easing the financial stress of oil marketing companies (OMCs), which have been bearing significant losses over the past several months.

The Centre has reduced excise duty on petrol by around ₹10 per litre and brought it down to nearly ₹3 per litre. In the case of diesel, the excise duty of about ₹10 per litre has been effectively eliminated. This marks one of the sharpest reductions in recent years.

However, despite the magnitude of the cut, retail fuel prices have not seen a proportionate decline across the country.

The reason lies in the mounting under-recoveries faced by public sector OMCs such as Indian Oil, BPCL, and HPCL. With global crude oil prices hovering in the range of $90–$110 per barrel in recent months, these companies were selling petrol and diesel below cost for an extended period.

Industry estimates suggest that OMCs were incurring losses of ₹8–₹12 per litre on diesel and ₹5–₹7 per litre on petrol at the peak of the price surge.

Instead of passing on the full benefit of tax reduction to consumers, the government has allowed OMCs to use this fiscal space to offset a part of these losses. This approach helps the companies improve their cash flow and maintain operational stability without resorting to sharp price hikes at fuel stations, which could have triggered broader inflationary pressures.

From a fiscal perspective, the excise duty cut comes at a considerable cost. The government is estimated to forgo tens of thousands of crores in annual revenue due to this reduction. This could widen the fiscal deficit unless compensated by higher collections elsewhere or spending adjustments.

For consumers, the relief is therefore indirect and gradual. While pump prices may not fall immediately, the likelihood of steep price hikes in the near future is reduced. In that sense, the government’s strategy is to smoothen price volatility rather than deliver instant price cuts.

The move also highlights the structural challenge in India’s fuel pricing system. Despite deregulation, fuel prices remain sensitive to political and economic considerations.

When global prices rise sharply, OMCs often absorb losses, and the government later intervenes through tax adjustments or financial support.

In essence, the excise duty cut is less about immediate consumer gain and more about sustaining the energy ecosystem. By supporting oil companies during a period of high global prices, the government aims to ensure uninterrupted fuel supply and prevent a shock to the broader economy, even if that means postponing direct relief for the common consumer.