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The government on Monday hiked the excise duty on petrol and diesel by Rs 2 per litre and announced an increase in the price of cooking gas cylinders by Rs 50 with effect from Tuesday. Both these steps, according to Petroleum Minister Hardeep Singh Puri, are aimed at providing relief to public sector oil marketing companies (OMCs) by compensating them for their accumulated losses on cooking gas sales. To insulate consumers from high prices of liquefied petroleum gas (LPG, or cooking gas) in the international market, the OMCs have been selling LPG to households at a loss.
The hike in fuel excise duty was notified by the Finance Ministry on Monday afternoon. Speaking to reporters shortly after, Puri clarified that the burden of increased excise duty will not be passed on to the consumers and it will have no impact on retail prices of the two fuels. The minister indicated that the additional amount collected as a result of the duty hike may eventually be used by the government to cover the OMCs’ losses on LPG sales. He said that the OMCs will also hike LPG prices for households by Rs 50 from Tuesday morning, which will also help in reducing their under-recoveries on cooking gas sales.
Amid a steep fall in international crude oil prices over the mounting trade friction between the US and China, the government hiked the Special Additional Excise Duty (SAED) on petrol to Rs 13 per litre from Rs 11, and that on diesel to Rs 10 from Rs 8 per litre. SAED is a component in the overall fuel excise structure and goes entirely into the Centre’s kitty, unlike the Basic Excise Duty (BED) that is shared with states. Over the past 11 years, the government has hiked excise duty on petrol and diesel on a number of occasions when international oil prices saw significant downward correction. It has also cut excise duty on the two fuels on a few occasions to provide relief to consumers when global oil prices rose notably.
As for domestic cooking gas prices, a 14.2-kg cylinder will cost Rs 853 from Tuesday for general households, up from Rs 803 in Delhi, with corresponding changes in other states. For poor households availing cooking gas under the Ujjwala scheme, the price in Delhi will go up to Rs 553 per cylinder from Rs 503. As India depends on imports to meet its LPG demand, cooking gas prices are linked to international LPG price benchmarks.
The country’s largest fuel retailer—Indian Oil Corporation (IOC)—also posted on X that the additional mop-up due to the hike in excise duty “may be” used to provide relief to the OMCs on the LPG under-recovery front.
“The #ExciseDuty increase of Rs. 2 per litre on #petrol and #diesel by Central Government will not be passed on to the consumers. On one hand, this will insulate the customers from the price hike while on the other hand, the collected amount may be utilised towards under-recovery of #LPG, providing relief to Oil Marketing Companies,” IOC said in its post on X.
The government estimates that the three OMCs—IOC, Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)—would have incurred a cumulative loss of over Rs 41,300 crore on LPG sales in 2024-25 (FY25) as they have been selling the household cooking fuel way below international prices. Petroleum Secretary Pankaj Jain said that he was hopeful that the OMCs will be compensated for their accumulated losses on LPG sales over a year or so through an appropriate mechanism by the government.
Annual petrol and diesel sales in the country stand at around 16,000 crore litres, which means that the increase in excise duty should lead to an additional revenue of around Rs 32,000 crore for the government on an annualised basis. The Petroleum Ministry and the OMCs expect this incremental revenue to flow back into the OMCs as government support. Notably, in October 2022, the government had approved a one-time grant of Rs 22,000 crore for OMCs to partially cover their accumulated losses of around Rs 28,000 crore at the time from selling LPG at a loss in consumer interest.
According to industry insiders, the recent decline in international crude oil and petroleum product prices had created enough headroom for the Centre to increase the levy on the two fuels. Alternatively, the benefit could have been passed on to the consumers in the form of a reduction in retail prices of the two fuels.
Puri said that the OMCs have an inventory cycle of around 45 days and have still not started reaping the benefits of the recent crash in oil prices, which have dropped to a little over $60 per barrel. He added that if the international crude oil prices stay around the current levels for a few weeks, a reduction in retail prices of petrol and diesel may be on the cards.
Prashant Vashisht, Senior Vice President & Co-Group Head at ICRA said that the recent fall in oil prices mean that the OMCs’ marketing margins are expected to remain healthy, notwithstanding the hike in excise duty.
“Crude oil prices have crashed to $63-64/barrel (bbl) now from above $77/bbl as on March 31 owing to growing fears of a global recession with retaliatory tariffs being announced by China. Additionally, the planned production increase by OPEC+ is also contributing to downward pressure on crude prices. Also, the GoI announced an increase in price of domestic LPG by Rs 50/cylinder with effect from April 8, 2025. The increase in the price of LPG would provide support to the profitability of oil marketing companies who were suffering massive under recoveries on the sale of domestic LPG,” Vashisht said in a note.
According to the Petroleum Ministry’s estimates, the average Saudi CP—the international benchmark for LPG pricing—has gone up 63 per cent to $629 per tonne in February 2025 from $385 in July 2023. This should ideally translate into cooking gas being retailed at Rs 1,028.50 per 14.2-kg cylinder in Delhi. However, the OMCs have been selling cooking gas to households at a significant loss in consumer interest. The Petroleum Minister indicated that cooking gas prices will be reviewed every 15 days to a month and if international prices cool down, the benefit will be passed on to the consumers.
