Government Reduces Excise Duty on Fuel Amid Rising Global Oil Prices

In response to soaring global oil prices, the Indian government has reduced excise duty on petrol and diesel by Rs 10 per litre, preventing a necessary price hike at the pump. This decision is expected to result in a revenue loss of Rs 1.75 lakh crore. The government has also reinstated export duties on diesel and aviation turbine fuel to ensure adequate domestic supply. With international oil prices exceeding USD 100 per barrel, the situation has become financially challenging for oil companies. The excise duty cut aims to protect consumers from rising prices while balancing the financial impact on the government. This article explores the implications of these changes and the government's strategy to manage fuel prices amid global uncertainties.

By Narendra Chaudhary Mar 27, 2026, 16:37 IST

Excise Duty Cut on Petrol and Diesel

New Delhi: In a significant move, the government has reduced the excise duty on petrol and diesel by Rs 10 per litre, preventing a necessary increase in pump prices due to escalating global oil rates. The special additional excise duty on petrol has been decreased from Rs 13 to Rs 3 per litre, while for diesel, it has been eliminated entirely. This adjustment is expected to result in a revenue loss of approximately Rs 1.75 lakh crore. Additionally, the government has reinstated export duties on diesel and aviation turbine fuel (ATF), as per a notification released late Thursday.

The government has set an export duty of Rs 21.5 per litre on diesel and Rs 29.5 per litre on ATF, reviving a levy that was first introduced in July 2022 to limit excessive profits by refiners following geopolitical tensions, particularly after Russia's invasion of Ukraine. However, unlike the previous instance, no windfall tax has been imposed on domestic crude oil producers such as ONGC.

Recent conflicts in the Middle East have caused international oil prices to surge by 50%, exceeding USD 100 per barrel. Given the current crude prices, petrol should have seen an increase of Rs 26 per litre, while diesel would have risen by Rs 81.90. State-owned oil marketing companies had been absorbing these high costs, but the situation had become financially unsustainable, prompting the government to cut excise duties to offset the necessary price hikes.

Following the excise duty reduction, the excise incidence on petrol will now be Rs 11.9 per litre, which includes Rs 1.40 as basic excise duty, Rs 3 as special additional excise duty, Rs 2.50 for agriculture infrastructure and development cess, and Rs 5 for road infrastructure cess. For diesel, the total excise incidence will be Rs 7.80 per litre, comprising Rs 1.80 as basic excise duty, Rs 4 for agriculture infrastructure and development cess, and Rs 2 for road and infrastructure cess.

With an annual sale of approximately 175 billion litres of auto fuel (115 billion litres of diesel and 60 billion litres of petrol), the impact of this duty reduction is projected to be around Rs 1.75 lakh crore each year. This decision follows record losses faced by oil companies due to the spike in international oil prices, which have risen nearly 50% this month due to ongoing conflicts.

Despite the increase in crude oil prices, retail pump rates had remained unchanged, leading to significant losses for oil companies, which began to affect their working capital. To alleviate this financial strain, the government has opted to reduce excise duties, which will be adjusted against the required increases of Rs 24 per litre for petrol and Rs 30 per litre for diesel due to the rise in international oil prices.

According to a recent note from a rating agency, if crude oil prices average between USD 100-105 per barrel, fuel retailers could face losses of Rs 11 per litre on petrol and Rs 14 per litre on diesel. Earlier this month, international oil prices peaked at USD 119 per barrel due to escalating tensions in Iran, before stabilizing around USD 100.

Recently, Nayara Energy, the largest private fuel retailer in India, raised petrol prices by Rs 5 per litre and diesel by Rs 3 per litre, bringing petrol prices at their outlets to Rs 100.71 per litre and diesel to Rs 91.31 per litre. In contrast, state-owned retailers, which dominate about 90% of the market, have kept their rates unchanged, with petrol in Delhi priced at Rs 94.77 per litre and diesel at Rs 87.67 per litre.

According to the oil ministry, current under-recoveries stand at approximately Rs 26 per litre for petrol and Rs 81.90 per litre for diesel, with daily under-recoveries totaling around Rs 2,400 crore. Finance Minister Nirmala Sitharaman stated that the excise duty reduction aims to shield consumers from price hikes, emphasizing the government's commitment to protecting citizens from fluctuations in supply and essential goods costs.

Oil Minister Hardeep Singh Puri noted that international crude prices have surged dramatically in the past month, rising from around USD 70 to approximately USD 122 per barrel. He highlighted that petrol and diesel prices have increased globally, with significant hikes observed in Southeast Asia, North America, Europe, and Africa. The government faced a choice between drastically raising prices or absorbing the financial impact, ultimately opting to protect consumers.

Puri reiterated that the government has taken substantial hits to its tax revenues to mitigate the losses faced by oil companies. He also mentioned the imposition of export taxes on diesel and petrol due to soaring international prices, ensuring adequate domestic supply. The government is closely monitoring global energy and supply chain developments to ensure uninterrupted availability of fuel and essential commodities for citizens.

He assured that India has shown resilience amid global uncertainties and will continue to respond proactively to emerging challenges. Puri dismissed rumors of a lockdown in India as unfounded, urging calm and unity among citizens during these times.