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On March 26, 2026, a queue of people waited to fill up their tanks at a gas station in Guwahati, India, amid a backdrop of significant economic decisions by the Indian government.
According to Petroleum and Natural Gas Minister Hardeep Singh Puri, the Indian government has experienced a substantial decline in tax revenues following its move to reduce central excise duties on fuel for domestic purposes. This announcement came on Friday.
In an effort to prevent a spike in fuel prices due to global disruptions triggered by the conflict in Iran, the government announced late Thursday that it would cut central excise duties on petrol and diesel by 10 rupees (approximately $0.11) per liter.
Puri highlighted the dramatic surge in international crude oil prices over the past month, with prices escalating from about $70 per barrel to nearly $122, as noted in his social media post on platform X.
The minister explained that the government is taking on the financial burden of these escalating energy costs to stabilize retail fuel prices. This measure is intended to mitigate the financial strain on oil companies, which are currently incurring losses of approximately 24 rupees per liter for petrol and 30 rupees per liter for diesel.
The government has decided to bear the cost of rising energy prices and keep retail fuel prices from rising, he said, adding that these tax cuts will reduce the losses faced by oil companies, which stand at around 24 rupees per liter for petrol and 30 rupees per liter of diesel.
According to a government notice, the excise duty for petrol will be reduced to 3 rupees per liter, down from 13 rupees, while diesel will be zero rupees per liter, down from 10 rupees.
As a further safeguard, the government raised duties on diesel exports to 21.5 rupees per liter and on aviation turbine fuel to 29.5 rupees per liter. Finance Minister Nirmala Sitharaman said it was done to “ensure adequate availability of these products for domestic consumption.”
“This will provide protection to consumers from rise in prices,” Sitharaman said in a post on X on Friday.
Oil is a sticky topic
As the world’s third‑largest oil importer and second‑largest liquefied petroleum gas consumer, India is grappling with rising energy costs and panic‑buying amid tightening supplies due to the closure of the Strait of Hormuz.
“The longer the energy supply disruptions persist with oil prices remaining above $100/barrel, the higher the structural risks to the economy, particularly if domestic policy responses are not managed carefully,” said Luchnikava-Schorsch, head of Asia-Pacific Economics, S&P Global Market Intelligence, told CNBC.
If the Indian government raises retail prices of oil and gas, it could lift inflation and temper growth. However, absorbing the higher costs would widen the fiscal deficit.
The impact of the Middle East conflict is already visible in key macroeconomic indicators.
HSBC‘s flash Purchasing Managers’ Index, released Tuesday, showed that India’s private‑sector activity in March slowed to its lowest level since October 2022 due to softer domestic demand.
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Companies surveyed cited the Middle East conflict, unstable market conditions, and intensifying inflationary pressures as factors weighing on growth. Cost inflation is now near a four‑year high.
If oil settles at $85-$95 a barrel after the war, that could lead to incremental outflows of $40 billion to $50 billion — more than 1% of India’s GDP — according to Renaissance Investment Managers CEO and Chief Investment Officer Pankaj Murarka, speaking to CNBC’s “Inside India” on Friday.
This could trim India’s economic growth to 6.5% from from 7.2%, he said.
