India hikes petrol and diesel prices after four years, yet oil firms continue to struggle with under-recoveries.
After more than four years of price stability, petrol and diesel rates in India have been increased by ₹3 per litre each. The hike comes as state-run oil marketing companies (OMCs) attempt to pass on part of the burden caused by rising global crude oil prices.
In the national capital, petrol prices have climbed to ₹97.77 per litre from ₹94.77, while diesel prices have risen to ₹90.67 from ₹87.67 per litre. Alongside liquid fuels, compressed natural gas (CNG) prices have also been raised by ₹2 per kg in major cities, with Delhi now seeing rates of ₹79.09 per kg and Mumbai at ₹84 per kg.
This marks the first major upward revision in fuel prices since April 2022, apart from a minor ₹2 per litre reduction in March 2024 ahead of the general elections. Despite a sharp increase in global crude oil prices over the past few months, domestic retail fuel prices had remained largely unchanged until now.
The delay in revising prices had placed a significant financial burden on oil marketing companies, forcing them to absorb rising costs for an extended period.
The recent price increase has been largely driven by a sharp surge in global crude oil prices. Since late February, crude prices have risen by over 50%, primarily due to escalating geopolitical tensions in West Asia.
The conflict, which disrupted energy supply chains and affected shipments through the Strait of Hormuz, has significantly increased import costs for countries like India. As one of the largest importers of crude oil, India is highly sensitive to such global price movements.
Despite the latest hike, analysts believe that oil marketing companies are still facing substantial financial stress. Before the price revision, the three major state-run retailers—Indian Oil Corporation, Bharat Petroleum Corporation Limited, and Hindustan Petroleum Corporation Limited—were collectively incurring losses of nearly ₹1,000 crore per day.
Even after the ₹3 per litre increase, these companies continue to experience under-recoveries, meaning they are selling fuel below cost.
Experts estimate that earlier under-recoveries were around ₹13–15 per litre for petrol and ₹17–18 per litre for diesel. To offset even half of these losses, a price increase of nearly ₹10 per litre would have been required.
Industry analysts suggest that the recent hike provides only partial relief to oil companies. Even after the revision, OMCs are estimated to be losing approximately ₹3.2 per litre on petrol and ₹7.5 per litre on diesel.
At current global crude prices, which are hovering between $105 and $110 per barrel, daily losses could still remain around ₹500 crore across petrol, diesel, and LPG sales.
This indicates that the financial strain on OMCs is far from over, and further price adjustments may be necessary if global crude prices remain elevated.
The increase in fuel prices is expected to have a direct as well as indirect impact on inflation. Economists estimate that the immediate effect on retail inflation could be in the range of 12–20 basis points.
When secondary effects such as higher transportation and logistics costs are factored in, the overall inflationary impact could rise to 15–30 basis points over the coming months.
Since fuel is a key input cost across multiple sectors, including agriculture, manufacturing, and logistics, any increase in fuel prices tends to have a cascading effect on the broader economy.
The hike in diesel prices, in particular, is expected to affect freight and transportation costs. Diesel is widely used in commercial vehicles, and any increase in its price directly impacts logistics expenses.
Experts suggest that a ₹3 per litre rise in diesel prices could increase freight operating costs by around 2–3%. Heavy vehicle freight rates may rise by approximately 60 to 100 paise per kilometre.
Such increases could eventually be passed on to consumers in the form of higher prices for goods and services.
India’s daily fuel consumption remains substantial, with approximately 155 million litres of petrol and 308 million litres of diesel consumed every day. Given this scale, even small price changes can have a significant financial impact on both consumers and the government.
While higher prices may encourage some degree of fuel conservation, demand is expected to remain strong due to economic activity and mobility needs.
Amid rising import costs and pressure on foreign exchange reserves, Prime Minister Narendra Modi has urged citizens to adopt fuel-saving practices.
The call includes reducing unnecessary travel, optimizing fuel usage, and adopting more energy-efficient alternatives. Such measures are aimed at lowering the country’s overall import bill and easing pressure on the economy.
Given the current scenario, experts believe there is still room for further calibrated fuel price increases. If crude oil prices remain high and the government decides to ease the financial burden on OMCs, additional hikes may become inevitable.
However, policymakers will need to balance this with inflation concerns and the potential impact on consumers.
Conclusion
The recent fuel price hike marks a significant shift after years of stability, reflecting the growing pressure from global crude oil markets. While the increase provides some relief to oil marketing companies, it falls short of fully addressing their losses.
With inflationary pressures building and global uncertainties continuing, the fuel pricing landscape in India is likely to remain dynamic in the months ahead. Both consumers and policymakers will need to adapt to this evolving situation.