- The largest fuel price cut was in March 2026, which lowered diesel excise duty to nearly zero, sources said
- Oil companies faced losses of Rs 24,500 crore between 2021-2024 amid high crude prices
- The government absorbed losses and used export duties to maintain stable domestic fuel prices
India has cut fuel prices four times in the last four years, government sources said days after the recent Rs 3 price hike. The most substantial of these took place on March 27 this year when the Special Additional Excise Duty (SAED) was slashed by Rs 10 per liter, effectively bringing the excise duty on diesel down to nearly zero.
Sources said between 2021 and 2026, the Centre reduced excise duty on fuel four times: In November 2021, a reduction of Rs 5 on petrol and Rs 10 on diesel was implemented; in May 2022, petrol became cheaper by Rs 8 and diesel by Rs 6; prices were further reduced in March 2024 and April 2025.
All this took place in the backdrop of much volatility in the crude oil market that started with the Russia-Ukraine war in February 2022. Now with the ongoing US-Iran war in the middle-east, crude oil prices have climbed to $120 a barrel.
Most nations passed the burden of these elevated prices directly onto consumers. But India adopted a distinct policy, striving to maintain stability and implement retail price cuts for petrol and diesel, sources said.
The government, they said, has adopted a multi-pronged strategy to provide relief to consumers. These include reduction in excise duty, absorption of losses by oil companies, maintaining domestic supply through imposition of export duties and repayment of legacy oil bonds.
Oil Bonds vs. Current Policy
Comparing current oil prices with that of 2014 could be misleading. The lower prices prevalent at that time were the result of a financial liability deferred to the future through the issuance of "Oil Bonds".
The current government was compelled to redeem oil bonds worth approximately Rs 1.34 lakh crore issued between 2005 and 2010. It has also provided relief to consumers by directly reducing taxes.
Through tax cuts implemented in March 2026 alone, the government absorbed a financial burden of approximately Rs 30,000 crore.
Financial Burden on Government, Oil Companies
During periods of high crude oil prices, both government and public sector oil companies endured immense economic pressure. During the Hormuz crisis, the government indirectly absorbed a price differential of up to Rs 24 per litre on petrol and Rs 30 per litre on diesel, sources said.
Between 2021 and 2024, oil companies incurred losses amounting to approximately Rs 24,500 crore, while a burden of nearly Rs 40,000 crore was borne in 2024-25 to provide relief to LPG consumers.
Between February and May 2026 - a period when global fuel prices witnessed a sharp surge - prices in India remained relatively stable. While countries such as Myanmar, Malaysia, Pakistan, and the USA saw petrol and diesel prices rise by 40 per cent to 100 per cent, the price rise in India remained limited to approximately 4 per cent.
Price Variations Due to State-Level VAT
The primary reason for the disparity in petrol and diesel prices across states is the Value Added Tax (VAT) levied by state governments. The Centre's excise duty is uniform nationwide.
In some states, the VAT rate exceeds 30 per cent, resulting in significantly higher prices. In states such as Andhra Pradesh, Telangana, and Kerala, petrol prices hover above Rs 107 a litre. In states like Gujarat, Uttar Pradesh, Delhi, Haryana, Goa, and Assam, prices remain relatively lower (at or below ₹97 per litre) due to lower VAT rates.
