Fuel price hike in India: OMC losses hit Rs 1 lakh cr

Why fuel pricing is back on the table

India may be nearing the end of its long fuel price freeze as losses at state-run oil marketing companies (OMCs) mount amid higher global crude prices. Prime Minister Narendra Modi’s weekend appeal asking citizens to reduce petrol and diesel consumption has added to expectations that pump prices could be revised. Sources cited on May 11 said the appeal may be a precursor to a long-delayed hike, as crude prices surged amid a US-Iran deadlock and wider West Asia tensions.

The immediate trigger is the widening gap between OMCs’ input costs and retail selling prices. While OMCs have been absorbing the difference to protect consumers, the scale of under-recoveries is now raising questions on sustainability. Officials and industry executives have indicated that discussions are under way across the finance ministry, the petroleum ministry, and OMCs on how and when any revision should happen.

What the government and OMCs are discussing

According to sources, the timing and extent of any price hike will depend on global crude trends and the government’s approach to balancing inflation, fiscal pressures, and energy pricing. A senior government official said OMCs are incurring under-recoveries on sales of petrol, diesel, and LPG and are in regular touch with both the petroleum and finance ministries. The official added that discussions on price hikes are taking place.

The sensitivity is not only political but also macroeconomic. Any move to raise petrol and diesel prices can feed into headline inflation, transport costs, and consumer sentiment. At the same time, delaying revisions shifts the burden to OMC balance sheets and, indirectly, to government finances through potential support measures and foregone taxes.

Losses at OMCs: the numbers cited publicly

Petroleum and natural gas minister Hardeep Singh Puri, in a LinkedIn post dated May 10, said OMCs are under mounting pressure as under-recoveries are projected at about Rs 200,000 crore this quarter, with losses estimated at around Rs 100,000 crore. He said state-run OMCs are buying crude, gas, and LPG at higher cost in light of the West Asia crisis, but selling final products at lower prices to protect consumers.

Puri also said losses could be as high as Rs 1,000 crore a day. He noted the scale of the retail network and demand, stating that more than 60 million consumers visit retail stations every day.

Separately, PTI sources said the combined under-recovery on petrol, diesel, and cooking gas LPG for the three OMCs is about Rs 1,600 crore to Rs 1,700 crore daily. The report added that total under-recovery for 10 weeks is well over Rs 100,000 crore. The three companies named were Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL).

Crude prices and the “comfortable” range

Industry commentary has pointed to crude prices moving far above levels considered manageable for domestic retail pricing. Sourav Mitra, Partner, Oil and Gas at Grant Thornton Bharat, said that with crude well above the comfortable USD 65 to 70 per barrel range, the situation is financially unsustainable and a price hike appears increasingly inevitable if elevated prices persist.

Data cited from the Petroleum Planning and Analysis Cell showed the average import cost for refiners rising from USD 69.01 per barrel in February to USD 104.68 per barrel in May. Other reports in the provided material also referred to crude crossing USD 104 per barrel amid fresh geopolitical tensions involving the United States and Iran.

Why pump prices have been steady since April 2022

Retail petrol and diesel prices in India have largely remained unchanged since early April 2022, compressing marketing margins and increasing pressure on OMC balance sheets. The freeze has insulated consumers during periods of global volatility, but it has also meant OMCs have had to absorb cost increases when global prices rise sharply.

PTI sources also indicated that after insulating the Indian market for 10 weeks, OMCs may have to borrow more to meet working capital requirements, including funding crude purchases. Another source described OMCs as operating under significant financial pressure.

Government revenue impact from excise duty cuts

The government’s earlier intervention included cutting excise duties to absorb part of the burden. Puri wrote that the Modi government reduced excise duties on retail fuel and saw revenue losses of Rs 14,000 crore in a month.

PTI sources repeated a similar estimate, saying the government is taking a hit of Rs 14,000 crore a month because of the excise duty reductions. In the provided material, excise changes were also detailed as: the special additional excise duty on petrol reduced to Rs 3 per litre from Rs 13, and excise duty on diesel cut to zero from Rs 10.

What a price hike could mean for consumers and inflation

A hike in petrol and diesel prices would directly lift retail fuel bills and can raise logistics and transport costs across the economy. But keeping prices frozen shifts the cost elsewhere, including the possibility of higher OMC borrowings and weaker financial metrics for the state-run retailers.

The government’s dilemma is amplified by the size of current losses being reported and the possibility that elevated crude prices could persist. Sources described the decision as a political call, with one source stating there is no doubt that a fuel price hike has become inevitable, but the timing and quantum have to be decided by the government.

Strategic context: demand management and supply comfort

Alongside pricing, the government has also signalled demand-side measures. Modi’s appeal included reducing petrol and diesel usage and, where possible, using public transport and carpooling. Separately, the Telugu-language report included a data point that India has about 74 days of oil reserves when combining strategic and commercial stocks, and that reducing demand is part of the approach to navigate the stress.

Key facts at a glance

Conclusion

The provided reports point to a clear trade-off: keeping pump prices steady has protected consumers, but it has also pushed OMC under-recoveries beyond Rs 100,000 crore and intensified pressure on public finances. With crude prices cited as well above the USD 65 to 70 per barrel comfort zone, officials and industry sources expect a retail price revision to remain under active consideration. Any decision on timing and quantum is expected to depend on global crude trends and the outcome of ongoing discussions between the petroleum ministry, the finance ministry, and the OMCs.