Indian state-owned oil marketing companies are grappling with escalating losses on petrol and diesel sales as retail prices remain frozen despite a sharp rise in global crude oil costs. Industry sources indicate that losses on petrol have climbed to Rs 18 per litre, while diesel losses have surged to Rs 35 per litre.
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have maintained a freeze on retail fuel prices since April 2022. This comes against a backdrop of significant fluctuations in international crude oil prices, which have been heavily influenced by geopolitical events.
Global Volatility Squeezes Margins
Following the Russia-Ukraine conflict, crude oil prices initially soared above USD 100 per barrel. While they eased to around USD 70 earlier this year, recent tensions involving the US, Israel, and Iran have pushed prices back up to approximately USD 120 per barrel. This volatility directly impacts the import-dependent Indian market, as India procures about 88% of its crude oil needs.
At the peak of these price surges, the three public sector undertakings (PSUs) were reportedly incurring daily losses of around Rs 2,400 crore. These losses partially narrowed to about Rs 1,600 crore after the government implemented excise duty reductions of Rs 10 per litre on both petrol and diesel. However, industry experts note that these duty cuts only partially offset the losses and were not passed on to consumers.
Fiscal Implications and Future Outlook
A report by Macquarie Group on India's fuel retail sector estimates that at crude prices ranging from USD 135-165 per barrel, oil marketing companies face losses of Rs 18 and Rs 35 per litre on petrol and diesel, respectively. The report further suggests that every USD 10 increase in crude prices adds approximately Rs 6 per litre to marketing losses.
The Macquarie report has also flagged the potential for retail fuel price hikes following upcoming state elections in West Bengal and Tamil Nadu, indicating a risk of higher pump prices post-elections in April. While India is a net importer of crude, it remains a net exporter of key petroleum products such as diesel, petrol, and aviation turbine fuel.
Current central excise duties stand at Rs 11.9 per litre for petrol and Rs 7.8 per litre for diesel. Even a complete removal of these duties would be insufficient to fully offset the current losses. Furthermore, a full rollback of excise duties could lead to an annual revenue loss of approximately USD 36 billion and widen the fiscal deficit by 80 basis points, based on provisional consumption figures for FY26. The contribution of fuel excise duties to government revenue has already declined significantly, from 22% in FY17 to about 8% in FY26.