India Increases Excise Duty on Petrol and Diesel

April 8, 2025

No Comments Copy URL

India Increases Excise Duty on Petrol and Diesel by ₹2 per Litre: Implications and Insights

On April 7, 2025, the Indian government announced a hike in the Special Additional Excise Duty (SAED) on petrol and diesel by ₹2 per litre. This policy shift has sparked discussions across industries, households, and the investor community alike. While the change is designed to optimize revenue in a fiscally challenging period, it carries various implications — from fuel affordability to the financial performance of oil marketing companies (OMCs).

Understanding the Excise Duty Hike

The latest excise duty hike raises the total duty on petrol to ₹13 per litre and on diesel to ₹10 per litre. While duties and taxes on petroleum products have been a significant source of government revenue in recent years, this particular hike comes at a strategic time — when international crude oil prices have seen a steep fall.

Interestingly, the hike will not result in any increase in retail fuel prices for the general public, as confirmed by Public Sector Undertaking (PSU) OMCs. This move is primarily meant to support the government’s fiscal needs without increasing inflationary pressure on consumers.

Why Now?

Crude oil prices have dropped significantly, hitting their lowest since April 2021. This global downturn is largely driven by economic slowdowns and international trade tensions. In such a climate, the Indian government is leveraging the opportunity to absorb more taxes without raising pump prices. This ensures additional revenue without consumer backlash.

Increased revenue from this hike is estimated to contribute roughly ₹32,000 crore annually to the government’s coffers. The funds are earmarked to compensate oil companies for their under-recoveries in selling products like LPG at subsidized prices — especially under welfare schemes like Ujjwala Yojana.

No Immediate Impact on Retail Fuel Prices

Consumers can breathe easy — at least for now. The government has clarified that there will be no immediate impact on the retail prices of petrol and diesel. This is largely because the oil companies will absorb the additional duty, preventing the burden from shifting to end users. However, this also means that profit margins for these companies may get tighter in the short term.

Rise in LPG Cylinder Prices

In tandem with the excise duty hike, the government has also raised the price of domestic LPG cylinders by ₹50. This change came into effect from April 8, 2025. Although it adds to the monthly budget of households, it helps reduce the financial strain on OMCs due to subsidies on LPG.

To cushion this impact, subsidies will continue to be provided to Ujjwala scheme beneficiaries, maintaining support for low-income families who depend on affordable cooking gas.

Opposition’s Response and Political Backlash

The excise duty hike has drawn strong criticism from opposition parties. Leaders have pointed out that instead of passing on the benefits of falling crude prices to the public, the government is maximizing tax collection. There’s also concern about market volatility and inflation, with critics warning that such fiscal maneuvers could harm long-term economic stability.

Impact on Oil Marketing Companies and the Stock Market

Following the announcement, shares of key oil marketing companies showed a dip. Investors reacted cautiously, anticipating pressure on profit margins. Companies like Indian Oil, Bharat Petroleum, and Hindustan Petroleum saw their stock values decrease marginally. These movements reflect market concern over reduced profitability due to absorbed costs.

Historical Perspective on Fuel Taxes

This isn’t the first time the Indian government has used excise duty as a fiscal lever. Similar adjustments were made in 2014 and 2020 when global oil prices plummeted. In those instances too, the government prioritized increasing its revenue base, sometimes at the expense of price relief for consumers.

Excise duties have also been reduced occasionally — especially before elections or during periods of high inflation — to offer some respite to the public. These cyclical adjustments reflect a careful balancing act between economic goals and public sentiment.

Conclusion

The excise duty hike on petrol and diesel, though not directly affecting pump prices, marks a significant policy move aimed at fiscal consolidation. It underscores the government’s intent to strengthen revenue streams amid volatile global oil markets, while continuing to manage inflation and protect vulnerable populations through subsidies.

While consumers may not feel the pinch immediately, businesses and oil companies will likely navigate tighter financial margins. Whether this approach pays off long-term depends on global market trends, domestic inflation, and the government’s ability to balance economic priorities with public sentiment.