India may soon witness a long-awaited revision in fuel prices, as petrol and diesel rates are expected to increase before mid-May. The move comes amid mounting financial stress on oil companies due to surging global crude oil prices and ongoing geopolitical tensions.
India’s state-run oil marketing companies (OMCs), including Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum, are currently under significant financial strain.
According to industry sources, these companies are facing under-recoveries of nearly Rs 30,000 crore per month. This gap has emerged due to the mismatch between relatively stable retail fuel prices and sharply rising global crude oil costs.
Despite absorbing a large portion of the burden over the past few years, the situation has now reached a point where price adjustments may become unavoidable.
One of the key reasons behind the potential fuel price hike is the steep rise in global crude oil prices. Prices have surged from around $70 per barrel to nearly $126 per barrel in recent weeks.
This spike is largely driven by geopolitical instability in Middle East, which has disrupted oil supply chains and heightened concerns over energy security.
A major flashpoint has been the Strait of Hormuz, a critical shipping route through which nearly 20% of the world’s oil supply passes. Ongoing disruptions in this region have contributed to a broader global energy shock.
Despite the surge in crude prices, retail fuel prices in India have remained largely unchanged since 2022. This stability has been achieved through a combination of government intervention and financial absorption by OMCs.
Industry estimates suggest that the government and oil companies have been absorbing up to Rs 24 per litre on petrol and around Rs 30 per litre on diesel at peak crude price levels.
While this approach has shielded consumers from immediate price shocks, it has significantly increased the financial burden on both the government and oil companies.
If the proposed revision is implemented, petrol and diesel prices could rise by approximately Rs 4 to Rs 5 per litre. Additionally, domestic LPG cylinder prices may see an increase of around Rs 40 to Rs 50.
Such a move would mark the first major fuel price hike in nearly four years. While the increase may seem moderate, it could have a cascading effect on transportation costs, inflation, and household budgets.
The government is expected to carefully assess the timing and scale of the hike to minimise its impact on the broader economy.
Unlike several other countries, India has managed to avoid severe disruptions such as fuel shortages or rationing. Nations like Bangladesh, Pakistan, and Sri Lanka introduced emergency measures including fuel rationing and reduced working days, while South Korea implemented price caps.
India, on the other hand, adopted a multi-pronged strategy to manage the crisis effectively.
One of the key steps taken by India was increasing domestic LPG production. Output was ramped up from around 36,000 tonnes per day to approximately 54,000 tonnes per day, ensuring a steady supply of cooking fuel across the country.
Additionally, Indian refineries have been operating at over 100% capacity to meet domestic demand and maintain supply stability.
India has also diversified its crude oil sourcing strategy to reduce dependence on any single region. The country has increased imports from countries such as Russia, the United States, and regions like West Africa.
This diversification has helped mitigate supply risks and ensured uninterrupted fuel availability despite global disruptions.
To cushion the impact of rising global prices, the government reduced excise duties on petrol and diesel. These tax cuts played a crucial role in keeping retail prices stable for consumers over the past few years.
At the same time, India has expanded its energy infrastructure significantly. The number of LPG terminals has doubled since 2014, and the country now sources crude oil from around 40 countries, up from 27 earlier.
Ethanol blending has also increased from 1.5% to 20%, reducing dependence on fossil fuels and supporting cleaner energy initiatives.
Officials have indicated that the government is closely monitoring the situation in global energy markets before making a final decision on fuel price revisions.
The key challenge lies in balancing the financial health of oil companies with the need to control inflation. A sharp increase in fuel prices could lead to higher transportation costs, which in turn may push up the prices of essential goods.
Therefore, any decision regarding fuel price hikes is likely to be calibrated and gradual.
India’s experience during the current global energy crisis highlights the importance of long-term energy security. Investments in infrastructure, diversification of supply sources, and promotion of alternative fuels have helped the country navigate a challenging period.
Strategic petroleum reserves have also been strengthened, providing an additional buffer against supply disruptions.
As global crude oil prices remain volatile, India may soon have to adjust domestic fuel prices to reflect market realities. While the expected hike could impact consumers, it is a necessary step to ensure the sustainability of the energy sector.
Going forward, continued focus on energy diversification, infrastructure development, and policy support will be essential in managing similar challenges more effectively.