India’s tax revenues have suffered a “significant hit” following the government’s decision to reduce central excise duties on domestic fuel, according to Petroleum and Natural Gas Minister Hardeep Singh Puri on Friday.
Late Thursday, New Delhi cut excise duties on petrol and diesel by 10 rupees per liter each to prevent pump prices from soaring amid disruptions in global energy supplies caused by the Iran conflict.
Minister Puri noted that international crude prices have surged over the past month, climbing from about $70 per barrel to roughly $122 per barrel, in a post on X.
The government opted to absorb the rising costs of energy to keep retail fuel prices stable, he added, highlighting that the tax cuts also reduce losses for oil companies, which face deficits of around 24 rupees per liter for petrol and 30 rupees per liter for diesel.
The official notice indicated that excise duties on petrol will fall from 13 rupees to 3 rupees per liter, while diesel duties drop from 10 rupees to zero.
To further secure domestic supplies, the government raised duties on diesel exports to 21.5 rupees per liter and on aviation turbine fuel to 29.5 rupees per liter. Finance Minister Nirmala Sitharaman explained that the move ensures adequate availability for domestic consumption.
“This measure will protect consumers from price increases,” Sitharaman said in a post on X on Friday.
As the world’s third-largest oil importer and second-largest LPG consumer, India faces rising energy costs and panic buying amid tightening supply due to the closure of the Strait of Hormuz.
Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence, said that prolonged energy disruptions with oil above $100 per barrel increase structural risks to the economy, especially if domestic policy responses are not carefully managed.
Raising domestic fuel prices could curb inflation but might slow economic growth, while absorbing costs widens the fiscal deficit.
The effects of the Middle East conflict are already evident in key economic indicators. HSBC’s flash Purchasing Managers’ Index released Tuesday showed private-sector activity in India fell to its lowest since October 2022 due to weaker domestic demand.
Companies surveyed cited the Middle East tensions, volatile markets, and growing inflationary pressures as key factors suppressing growth. Cost inflation is now approaching a four-year high.
Pankaj Murarka told said “Inside India” that if oil prices stabilize at $85–$95 per barrel after the conflict, India could see incremental outflows of $40–50 billion, over 1% of GDP.
He added that such outflows could reduce economic growth to 6.5% from the earlier projection of 7.2%.