Since the ongoing tension in the Middle East and the closure of the Strait of Hormuz by Iran, there has been a continuous upward trend in the prices of crude oil in the global market. On Monday i.e. March 30, 2026, the price of crude oil reached above $115 per barrel. Oil prices have been on fire for the last one month, but the prices of petrol and diesel have not been increased in India. Rather, the government has reduced the excise duty on petrol and diesel. How much did this increase the burden on the government? How much loss do oil companies incur due to reduction in excise duty? Will the common man benefit or suffer loss? Let us know in the explainer…
Question 1: Why did the Indian government reduce excise duty amid rising oil prices?
answer: Increasing tension in the Middle East affected supplies in the Strait of Hormuz. Due to this, supply concerns increased in the global market and prices increased. India fulfills 88-90% of its crude oil needs through imports, and was directly affected by this shock. The price of Indian crude oil basket averaged around $117 per barrel in March.
Petroleum and Natural Gas Minister Hardeep Singh Puri said that the government has taken a big hit on taxation revenue so that the huge losses of oil companies (about Rs 24 per liter on petrol and Rs 30 per liter on diesel) can be reduced. This reduction has saved oil prices from rising for consumers and will also help in controlling inflation. Also, the government has imposed export duty of Rs 21.5 per liter on diesel export and Rs 29.5 per liter on aviation turbine fuel so that the domestic supply is not affected and unwanted profits in the foreign market can be prevented.
Question 2: How much have the losses of oil companies (OMCs) increased?
answer: Public sector oil marketing companies (IOC, BPCL, HPCL) are still incurring huge losses as they are selling petrol and diesel at prices much lower than international prices. According to Hardeep Singh Puri, there is an under-recovery (deficit) of about Rs 24 per liter on petrol and Rs 30 on diesel. In some reports this figure is stated to be even higher.
Talking about daily oil consumption, the total under-recovery of these companies is around Rs 2,400 crore (Rs 24 billion) per day. Due to reduction in excise duty, this loss has been reduced by about 30-40%, but not completely eliminated. Companies are still incurring losses, which is putting pressure on their balance sheets. Private companies like Nayara Energy increased some prices, but government companies are keeping most of the prices stable.
Question 3: How much burden is being imposed on the government by reducing excise duty?
answer: The government is incurring a huge loss of revenue due to the reduction in excise duty by Rs 10 per litre. It is estimated that if this cut continues for the entire financial year 2026-27, the government may suffer a revenue loss of Rs 1.3 lakh crore to Rs 1.7 lakh crore. Some experts estimate that the loss may increase to Rs 1.55 lakh crore or even Rs 1.75 lakh crore.
CBIC Chairman Vivek Chaturvedi said that there will be a revenue loss of about Rs 7,000 crore in the next 15 days. This amount is basically shifting from the Finance Ministry to the oil companies. As a result, the government’s fiscal deficit may increase. Besides, there is a possibility of additional burden on fertilizer subsidy.
Question 4: Then will the common man benefit or suffer from this?
answer: At present the prices of petrol and diesel have not increased, so there is direct relief to the consumers. Keeping inflation under control will help in keeping the prices of transport, grocery and other essential commodities stable, but if the deficit continues to increase in the long run, the government may have to raise revenue from other places or reduce expenditure. This can indirectly affect the economy.
Question 5: What could happen next?
answer: This situation depends on the tension in the Middle East. If the supply in the Strait of Hormuz returns to normal then prices may come down slightly. The government is reviewing the duty every two weeks. Oil companies are also trying to manage their costs. India has increased imports from alternative sources like Russia and is using strategic storage.
This decision is a clear message from the government that consumers and the economy will be protected from oil volatility. Even though this may put some burden on the revenue and balance sheets of oil companies, this situation cannot be sustainable in the long run, hence diplomatic efforts and emphasis on alternative energy sources are necessary.