Government cuts fuel excise duty as pressure rises from soaring crude prices

The government has sharply reduced excise duty on petrol and removed it entirely on diesel in a bid to cushion consumers and oil companies from surging global crude prices amid the ongoing conflict in the West Asia.

In a notification issued late on 26 March, the Finance Ministry cut excise duty on petrol to Rs 3 per litre from Rs 13, while the levy on diesel was slashed to nil from Rs 10. The changes have taken immediate effect.

The move comes as international oil prices have risen steeply, by nearly 50 per cent, since the United States and Israel launched strikes on Iran on 28 February, triggering retaliatory action from Tehran and disrupting global energy markets.

Despite the surge in crude prices, retail fuel rates in India have largely remained unchanged, putting significant financial strain on oil marketing companies. The duty reduction is expected to provide relief by improving their margins without passing the burden directly on to consumers.

Shares of state-run fuel retailers such as Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum opened higher following the announcement, reflecting improved investor sentiment.

Analysts had earlier warned of mounting losses for fuel retailers if crude prices remained elevated. According to a recent note by ICRA, companies could incur losses of around Rs 11 per litre on petrol and Rs 14 per litre on diesel if crude averages between USD 100 and 105 per barrel.

International benchmark prices had surged to as high as USD 119 per barrel earlier this month before easing to around USD 100, remaining volatile amid geopolitical uncertainty.

India, which imports about 88 per cent of its crude oil requirements and roughly half of its natural gas, is particularly vulnerable to such price shocks. A significant portion of these supplies passes through the Strait of Hormuz, a critical shipping route that has faced disruptions following Iranian warnings and reduced insurance coverage for tankers.

While most state-owned fuel retailers, which control nearly 90 per cent of the domestic market, have kept pump prices unchanged, private players have begun adjusting rates. Nayara Energy has raised petrol prices by Rs 5 per litre and diesel by Rs 3, citing higher input costs.

In contrast, Jio-bp, a joint venture between Reliance Industries and BP, has so far refrained from increasing prices despite reported losses.

In Delhi, fuel prices remain unchanged, with petrol retailing at Rs 94.77 per litre and diesel at Rs 87.67 per litre.

The excise duty cut is seen as a balancing measure, aimed at protecting consumers from immediate price shocks while ensuring the financial viability of oil companies during a period of sustained global volatility.

With PTI inputs