The government on Friday reduced excise duty on petrol and diesel by Rs 10 per litre each. The revision brings central taxes down to Rs 3 per litre on petrol, while excise duty on diesel has effectively been reduced to zero.
At first glance, the move appears to offer relief to consumers. However, the bigger question remains: will this translate into lower fuel prices at petrol pumps?
Why Prices May Not Fall Immediately
Despite the sharp reduction in excise duty, citing industry sources, NDTV Profit reported that retail fuel prices are unlikely to decline for most consumers.
This is because oil marketing companies (OMCs) are currently incurring significant losses on fuel sales. According to sources, OMCs are losing Rs 48.8 per litre on petrol and diesel, largely due to the surge in global crude oil prices.
As a result, the duty cut is expected to be absorbed by these companies to offset losses rather than being passed on to end users.
Crude Oil Shock: The Real Trigger
The steep losses are linked to the sharp rise in Brent crude prices, which crossed the $100 per barrel mark following the US-Israel war on Iran and disruptions in the Strait of Hormuz.
The ongoing conflict has severely impacted oil and gas exports from the West Asia region, tightening global supply and pushing up input costs.
Private Players Already Raised Prices
The duty cut comes shortly after Nayara Energy increased fuel prices. The company raised petrol prices by Rs 5.3 per litre and diesel by Rs 3 per litre.
Nayara Energy, backed by Russian firm Rosneft and Kesani Enterprises, holds around 8.4 per cent market share in India’s fuel retail space.
Why the Strait of Hormuz Matters
The Strait of Hormuz plays a crucial role in global energy supply. Before the conflict, nearly one-fifth of global seaborne crude oil and gas, between 20 and 25 million barrels of crude and about 10 billion cubic feet of gas per day, passed through this route.
For India, the dependence is particularly significant. Around 40 to 50 per cent of crude oil imports, estimated at 2.2 to 2.8 million barrels per day, historically pass through this channel.
India also imports 16 to 17 per cent of its liquified natural gas (LNG) from Qatar and the United Arab Emirates via this route.
In addition, large volumes of liquified petroleum gas (LPG), used by over 33 crore households, are sourced from the region, including supplies routed through the Strait of Hormuz.
Supply Concerns and Government Response
The disruption raised concerns over potential shortages of fuel in India. However, the government has sought to reassure consumers.
Officials stated that the country currently has around 60 days of crude oil stock cover and approximately 30 days of LPG supply. Reports suggesting shortages were dismissed as a “deliberate misinformation campaign”.
To mitigate risks, the government is also fast-tracking efforts to diversify crude oil and LPG import sources.
How Ready Is India?
Junior Petroleum Minister Suresh Gopi informed Parliament that India’s strategic petroleum reserves currently hold about 3.372 million tonnes, or roughly two-thirds of total capacity.
He added that total reserves, including stocks held by oil marketing companies, are sufficient for around 74 days.
On the LPG front, the government had earlier announced a 25 per cent increase in domestic production in early March, reiterating that there is no need for panic buying.
While the excise duty cut may appear to offer relief, its immediate benefit for consumers remains uncertain. With oil companies grappling with elevated input costs and global supply disruptions, the reduction is likely to serve more as a buffer for the industry than direct relief at the fuel pump, at least for now.
