India Hikes Excise Duty on Petrol and Diesel: Understanding the Move Amid Global Oil Price Fluctuations

India has recently increased the excise duty on petrol and diesel by ₹2 per litre, effective April 8, 2025. This move comes at a time when global crude oil prices are experiencing significant fluctuations due to various geopolitical factors. In this article, we delve into the reasons behind the hike, its implications for consumers, and how it fits into India's broader economic strategy.

Background and Key Details

The Indian government's decision to increase excise duty on petrol by ₹2 per litre brings the new rate to ₹13 per litre, while diesel's excise duty rises to ₹10 per litre from ₹8 per litre previously[1][2]. This change was announced by the Department of Revenue under the Ministry of Finance and reflects the government's effort to manage its revenue streams amid changing global oil prices.

Global Oil Price Scenario

Global oil prices have recently slumped to their lowest levels since April 2021, with Brent futures falling sharply due to concerns about a potential recession and escalating trade tensions between major economies such as the U.S. and China[2][3]. Despite these trends, Indian consumers are unlikely to see immediate benefits in the form of reduced retail fuel prices.

Why the Excise Duty Hike?

The decision to increase excise duty is part of a broader strategy to boost government revenue. This move is particularly significant in the aftermath of the removal of windfall profit taxes on domestic crude oil and petroleum exports in December 2024[1][5]. The windfall tax had been introduced to capture super-normal profits of energy companies during high global oil prices, and its removal necessitated alternative measures to stabilize government income.

Economic Implications

The primary reasons behind the hike include:

• Revenue Stabilization: With the removal of windfall profit taxes, the government needed to offset potential losses and maintain fiscal balance[5].
• Compensating for LPG Subsidies: Public sector oil marketing companies (OMCs) are facing significant under-recoveries due to subsidies on domestic cooking gas. The excise duty hike helps mitigate these losses[1].
• Market Dynamics: The recent correction in global crude oil prices allowed the government to increase duties without directly impacting retail prices, as OMCs can absorb the hike by adjusting against potential price cuts from lower international oil prices[2].

Impact on Retail Prices and Consumers

Despite the excise duty hike, retail prices of petrol and diesel are not expected to rise immediately. Public sector oil marketing companies (OMCs) will absorb the increase by adjusting it against potential reductions due to lower global oil prices[1][2]. However, if international crude prices remain stable or drop further, consumers might experience additional relief through lower fuel prices, as hinted by Oil Minister Hardeep Singh Puri[2][5].

Consumer Concerns and Market Reactions

The hike has drawn criticism from opposition parties, who argue that the benefits of lower global oil prices are not being passed on to consumers[3]. Meanwhile, shares of major oil marketing companies like Indian Oil and Bharat Petroleum saw declines following the announcement[3].

Key Factors and FAQs

Here are some key points and frequently asked questions regarding the excise duty hike:

• Why the Hike Now? The move aims to stabilize government revenues and support public spending, such as infrastructure and healthcare projects[1].
• Who Benefits? The revenue generated goes to the central government, supporting various public expenditures[1].
• Will Retail Prices Increase? No immediate increase is expected as OMCs will absorb the hike[1][2].
• Current Retail Prices and Margins: The retailer's margin or dealer commission remains unchanged, with OMCs absorbing the hike rather than passing it on to consumers[1].

Potential Future Developments

Looking ahead, the government's strategy will depend on the trajectory of global oil prices. If these prices continue to fall, there may be scope for further reductions in retail fuel prices, potentially benefiting consumers[5].

Conclusion

The Indian government's decision to hike excise duty on petrol and diesel reflects a strategic move to maintain fiscal balance and ensure revenue stability. While consumers may not see immediate price hikes, the move underscores the complexities of balancing government revenue with consumer interests in a volatile global energy market. As global oil prices continue to fluctuate, the government's approach to excise duties will remain a focal point for both economic policymakers and consumers alike.