India's state-owned oil marketing companies (OMCs) have collectively absorbed financial losses exceeding ₹1 lakh crore over the past 10 weeks, undertaking significant under-recoveries to maintain stable domestic fuel prices. This substantial financial burden comes as global crude oil prices surge amidst geopolitical tensions, particularly the conflict in West Asia.
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) have been selling petrol, diesel, and liquefied petroleum gas (LPG) at rates significantly below their actual cost. This strategic decision has insulated Indian consumers from the sharp price hikes seen in many other nations since the West Asia conflict began.
Mounting Under-Recoveries and Financial Strain
The daily under-recoveries for these OMCs are estimated to be between ₹1,600 crore and ₹1,700 crore. Despite a 50% increase in input crude oil prices, retail petrol and diesel prices have remained largely unchanged for two years, holding at approximately ₹94.77 per litre and ₹87.67 per litre, respectively. While domestic LPG prices saw a hike of ₹60 per cylinder in March, they still fall short of covering the actual cost of procurement and distribution.
This prolonged period of absorbing higher costs without full pass-through is placing considerable strain on the OMCs' finances. Revenue generated from fuel sales is the primary source for funding crude oil purchases, developing refining infrastructure, and expanding distribution networks. The current scenario suggests that these companies may need to increase their borrowings to meet working capital requirements for crude procurement.
Government Support and Future Outlook
The Indian government has also played a role in mitigating the impact, implementing excise duty cuts that have cost the exchequer approximately ₹14,000 crore monthly. These cuts included reducing the special additional excise duty on petrol from ₹13 to ₹3 per litre and cutting the excise duty on diesel from ₹10 to zero.
While strategic investments in refining expansion, energy security infrastructure, ethanol blending, and biofuels remain national priorities, sustained elevated crude prices could lead OMCs to reprioritise some capital expenditure timelines. However, the government is expected to continue supporting these crucial investments.
Unlike many countries, including Japan and the United Kingdom, which have seen petrol and diesel prices rise by up to 30% since the conflict, India has managed to keep its fuel prices stable. This has been a significant undertaking, especially considering India imports 40% of its crude oil, 90% of its cooking gas LPG, and 65% of its natural gas.
The commitment of OMCs to ensure uninterrupted supplies, even during periods of increased demand due to panic buying, underscores their vital role in India's energy security. However, the escalating under-recoveries highlight the growing financial pressure and the need for a sustainable long-term strategy.