Prof DM Deshpande
Fuel pricing in India has become a distorted cycle resulting in windfall profits and losses. Petrol and diesel prices have remained unchanged for almost four years, even as global crude has surged, fallen and risen again in the interim. Now, India is the only major oil importing nation that has not hiked its retail prices despite a 50% rise in global oil prices.
With global crude oil prices collapsing to historic lows during Pandemic years, OMCs enjoyed over recoveries. As per the Comptroller and Auditor General (CAG) report, petroleum PSU oil companies contributed Rs1.86 lakh crore in profits in FY2021–22, with Indian Oil alone earning Rs 24,184 crore. Dividends flowed generously: nine petroleum CPSEs paid Rs 37,833 crore in dividends, of which the central government received the lion’s share, boosting fiscal space during the pandemic years.
This situation, however, flipped once the Russia–Ukraine war started. And later the West Asia crisis drove crude prices above $100 a barrel. With retail prices remaining unchanged, OMCs have been forced to book losses (under‑recoveries), selling petrol, gas and diesel below cost. On April 2, 2026, Sujata Sharma, Joint Secretary in the Oil Ministry, told reporters that “currently, there is an under‑recovery of about Rs 24 per litre on petrol. According to ICRA, marketing margins remain negative, with LPG under‑recoveries projected at Rs 80,000 crore annually. That is why the government has hiked the commercial LPG price which will narrow the deficit gap. Fitch Ratings has warned that persistently high crude prices without pass-through will erode profits before taxes and strain free cash flow, creating serious credit risks for OMCs. Though there are conflicting reports, the Petroleum Ministry has maintained that no bailout or compensation package is on the table, meaning OMCs must absorb losses themselves. But if the crisis in the Gulf prolongs, the government would be compelled to bail out or in the alternative increase the retail oil prices. Daily losses at one point exceeded Rs 2,400 crore, eroding balance sheets and weakening the ability of OMCs to invest in infrastructure and energy security.
At the same time, commercial LPG prices have been sharply raised. On May 1, 2026, the price of a 19kg cylinder in Delhi was revised to Rs 3,071.50, a steep hike of nearly Rs 993 in one stroke. This selective adjustment disproportionately hurts small hotels, eateries, and poorer consumers who rely on economical outside food while working. It raises food and hospitality costs, feeds inflation, and undermines livelihoods. The policy effectively shifts the burden onto businesses and households while shielding private vehicle owners from the true cost of petrol and diesel. Bigger hotels and restaurants enjoy benefits of location convenience, goodwill and clientele which mostly belongs to middle and upper classes. They can pass on the burden to their customers by way of higher prices.
Even they have curtailed their menus and list items so as to save on gas consumption. However, a small restaurant using 15–20 cylinders a month now faces an additional Rs15,000–20,000 in expenses, which directly feeds into menu prices and household budgets. There are very small eateries and food businesses (their numbers are in hundreds and thousands in almost all metros, urban centres and even in rural areas) that can not simply pass on the burden to their customers because they belong to the lower economic strata in the society, like construction workers, auto drivers and gig employees. Even a small increase in price would lead to a significant fall in demand. There are reports that some of them may have no option except to close down their outlets. The broader fiscal picture is troubling. While the government got Rs 25,000–28,000 crore in dividends during the profit years, cumulative losses since 2022 have already exceeded Rs1.5–2 lakh crore, wiping out the earlier gains. The CAG has flagged that petroleum CPSEs remain dominant contributors to PSU profits and dividends, but their financial health is now under severe strain. The International Monetary Fund has repeatedly warned that energy subsidies crowd out social spending, a risk India now faces.
Raising LPG commercial prices is not a rational or equitable approach. Freezing petrol and diesel while hiking LPG masks fiscal stress rather than addressing it, creates hidden subsidies, and distorts inflation management. A calibrated, transparent adjustment across fuels, with targeted support for vulnerable groups, would be more equitable.
India’s fuel pricing cycle illustrates the dangers of politically driven freezes. So far, the government has placed its bet on ceasefire holding and opening up of the Strait of Hormuz. And this will lead to downward correction of oil prices. The script, however, has not worked exactly that way. Seventy days plus and still counting, there is no sign of normalcy returning to the Gulf. It is high time the government moves away from geo-political bet and focuses on burgeoning operational problems that threaten both-energy security and fiscal health. Suppressed retail prices will not bring about reduced demand. Imports, as a result, will continue to surge, putting pressure on rupee, fiscal space and balance of payments.
Fuel pricing cannot be treated as a political lever indefinitely. Short-term freezes may deliver electoral benefit, but they create long-term structural risks. Credible voices from ICRA, Fitch, and the CAG underline the unsustainability of the current policy. After years of debates and discussions, oil prices were freed in India as a part of reforms. The OMC’s were required to adjust oil prices every fortnight in line with global prices. This worked well for some time. But when prices were to be raised before elections, all parties in power developed cold feet. All the major OMC’s are owned and controlled by the government; hence, they could have their way despite prudent policy dictated otherwise.
The burden of high crude prices should be shared fairly among stakeholders—government, OMCs, and consumers. Instead, the current approach puts the entire weight on OMCs and small businesses, undermining both fiscal health and economic fairness.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh
