India cuts fuel excise duty as global oil prices surge past $100

India has cut excise duties on petrol and diesel while imposing windfall taxes on fuel exports, as global oil prices surged following disruption linked to the Iran war.

The move is aimed at protecting consumers and containing inflationary pressure, although economists said it would impact government finances.

Global oil prices have risen above $100 per barrel after the near closure of the Strait of Hormuz, which accounts for 40% of India’s crude oil imports. The disruption followed strikes on Iran by the United States and Israel on February 28.

In an order issued late on Thursday, the finance ministry reduced the special excise duty on petrol to Rs 3 per litre from Rs 13 earlier. The duty on diesel was cut to zero from Rs 10 per litre.

The government did not specify the fiscal cost of the cuts. The decision comes ahead of elections next month in four Indian states and one federal territory, where fuel prices are a sensitive issue for voters.

“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.

Madhavi Arora, an economist at Emkay Global, estimated the annualised fiscal impact at nearly 1.55 trillion rupees. She said the duty cuts would absorb about 30% to 40% of annual losses of oil marketing companies on auto fuel at current prices.

The yield on 10-year government bonds rose 7 basis points to 6.95%, the highest level in 20 months.

Shares of oil marketing companies including Bharat Petroleum Corp and HPCL rose more than 4% at the open before trimming gains.

Although fuel prices in India are technically deregulated, oil companies do not always increase prices in line with rising crude costs.

Windfall tax on exports

The government has imposed a windfall tax of Rs 21.5 per litre on diesel exports and Rs 29.5 per litre on aviation fuel exports.

Between April 2025 and January 2026, India exported 14 million metric tons of gasoline and 23.6 million tons of gasoil. Most state-run refiners have largely stopped exporting fuels, while Reliance Industries remains the country’s largest fuel exporter.

The tax is intended to ensure adequate domestic availability of fuel, Finance Minister Nirmala Sitharaman said in a post on X.

India is the world’s third-largest oil importer and consumer and relies heavily on imports.

The country consumed 33.15 million metric tons of cooking gas last year, with imports meeting about 60% of demand. Around 90% of these imports came from the Middle East.

Prime Minister Narendra Modi and the government said arrangements are in place to ensure supply of fertilisers for the summer sowing season and coal to meet rising electricity demand.

Congress response

The Congress on Friday said the excise cuts would not result in lower prices for consumers or dealers.

The government has reduced excise duty on petrol to Rs 3 per litre and removed the duty on diesel.

The opposition party said the government should focus on delivering actual relief instead of “manufacturing headlines and fooling people.”

Pawan Khera, head of the party’s media and publicity department, said, “If you saw the headlines about petrol and diesel prices ‘coming down’ and thought the government had offered relief to your pocket, you’d be mistaken.”

He said prices currently remain unchanged for both dealers and consumers.

“What has actually been reduced is the ‘special additional excise duty’ — a levy paid by Oil Marketing Companies to the government. The words ‘special’ and ‘additional’ reveal how unnecessary this tax is,” Khera said on X.