The government’s decision to by Rs 10 has raised expectations of relief for consumers, but a fall in retail fuel prices is far from certain.
The excise duty on petrol has been reduced to Rs 3 per litre from Rs 13 earlier, while diesel duty has been cut to zero from Rs 10 per litre.
On paper, such a move should lead to a reduction in pump prices. However, in practice, retail fuel prices in India are not directly controlled by the government.
Prices are determined by oil marketing companies such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, which take into account global crude prices, exchange rates and their own margins before revising retail rates.
WHY PRICES MAY NOT FALL
According to experts, it is unlikely that these companies will immediately pass on the benefit of the duty cut to consumers. The key reason is that oil companies have been absorbing the impact of elevated crude oil prices in recent weeks amid the ongoing conflict in West Asia.
The timing of the duty cut is also significant. It comes just a day after , highlighting the pressure on fuel retailers.
In such a situation, companies may choose to use the duty relief to offset earlier losses or stabilise margins rather than cut prices right away. This means that while the government has reduced its tax component, the benefit may not fully translate to consumers immediately.
According to Oil Minister Hardeep Singh Puri, international crude prices have surged sharply in the past month, rising from around $70 per barrel to nearly $122 per barrel. As a result, fuel prices have increased significantly across the world, with rises of 30% to 50% reported in several regions.
The minister said the government faced a choice between passing on the full impact to consumers or absorbing part of the shock. The decision to cut excise duty, he indicated, was aimed at protecting Indian consumers by taking a hit on government revenues.
He also noted that oil marketing companies have been incurring significant losses, estimated at around Rs 24 per litre on petrol and Rs 30 per litre on diesel at current global prices, and that the duty cut would help ease some of this pressure.
The biggest factor influencing fuel prices continues to be global crude oil. Brent crude is still trading above $100 per barrel, reflecting persistent geopolitical risks and uncertainty in supply.
As long as crude prices remain elevated, there is limited room for oil companies to reduce retail prices meaningfully. Any sharp escalation in tensions could push oil prices higher again, putting further pressure on fuel costs.
In this context, the excise duty cut acts more as a cushion than a direct price reduction. It provides oil companies with some flexibility to manage costs without immediately raising prices, rather than forcing a drop in retail rates.
For consumers, the immediate impact is likely to be limited. Petrol and diesel prices may not see a sharp decline despite the duty cut.
Instead, the move is more likely to help stabilise prices at a time of global uncertainty. A meaningful reduction in fuel prices would depend on a sustained cooling in crude oil prices, rather than a one-time tax cut.