NEW DELHI (Reuters) – India has slashed excise duties on petrol and diesel to protect consumers and curb a potential spike in inflation, while imposing windfall taxes on aviation fuel and diesel exports, amid volatile global oil markets due to the Iran war.
Global oil prices have surged past $100 per barrel after the near closure of the Strait of Hormuz, which serves as a conduit for 40% of India's crude oil imports, since the US and Israel first struck Iran on February 28.
In a government order late Thursday, India's finance ministry reduced the special excise duty on petrol to 3 rupees ($0.0318) per litre from 13 rupees. It also cut the duty on diesel to zero from 10 rupees per litre.
The move comes ahead of elections next month in four Indian states and one federal territory, with voters very sensitive to higher prices.
India will lose 70 billion rupees ($739 million) a fortnight from the excise cuts, although it will recover part of this - 15 billion rupees - through separate export taxes on some fuel products, Vivek Chaturvedi, chairman of Central Board of Indirect Taxes and Customs, told a press briefing.
The net hit to government finances will be 55 billion rupees per fortnight.
The yield on 10-year government bonds rose 7 basis points to 6.95%, its highest level in 20 months on concerns that the government may struggle to meet its fiscal deficit target of 4.3% of GDP for the financial year beginning April.
The tax cuts also ease the burden for oil marketing companies. While fuel prices in India are technically deregulated, state-run oil companies, which control 90% of the retail network, do not always raise prices when crude climbs.
As a result, consumers are shielded from volatility, with either the government or the companies absorbing the increases.
"Government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies, approximately 24 rupees a litre for petrol and 30 rupees a litre for diesel, at this time of sky high international prices, are reduced," Oil Minister Hardeep Singh Puri said in a post on X.
The government said that at current crude rates, the combined daily under-recoveries being absorbed by oil firms stand at 24 billion rupees.
Shares of oil marketing companies such as Bharat Petroleum Corp and HPCL reversed early gains to close slightly higher.
WINDFALL TAX ON EXPORTS
The diesel export tax was set at 21.5 rupees a litre, along with a 29.5 rupees a litre tax on aviation fuel exports, the order said.
Between April 2025 and January 2026, India exported 14 million metric tons of gasoline and 23.6 million tons of gasoil. Most refiners have stopped exporting fuels. Reliance Industries is the country's biggest fuel exporter.
Finance Minister Nirmala Sitharaman said the government will ensure there is no shortage of petrol, diesel and jet fuel.
It will support oil marketing companies so that citizens are spared price hikes and ensure that jet fuel prices do not rise, she told news agency ANI.
India, the world's third-biggest oil importer and consumer, relies heavily on overseas supplies.
In a letter dated Thursday, the petroleum ministry said it will raise the allocation of liquefied petroleum gas to commercial and industrial users by 20%, taking total supply to 70% of pre-crisis levels.
The increase builds on an existing 50% allocation, with priority to sectors such as steel, automobiles, textiles and other essential industries. India had cut gas allocation for non-cooking purposes after the start of the Iran war.
India consumed 33.15 million tons of cooking gas last year, with imports covering about 60% of demand. About 90% of those imports came from the Middle East.
Prime Minister Narendra Modi and his government have stressed adequate arrangements are in place, including for fertiliser supplies for the summer sowing season and coal to meet rising electricity demand.
The government, in a separate statement, assured the public that retail petrol and diesel prices will not change.