By Shaikh Salim
MUMBAI: There is a widely repeated claim that petrol prices in India are determined by global markets. On paper, that sounds reasonable. In practice, the numbers tell a very different story, one that raises serious questions about transparency, taxation, and who really benefits from fuel pricing.
Consider a straightforward calculation. When global crude oil prices were around $65 per barrel and India was importing discounted Russian oil at roughly $55, the base cost translated to about Rs 31 per litre. After ethanol blending, refining, transportation, and dealer commissions, the pre-tax cost of petrol was approximately Rs 41 per litre. Yet, consumers were paying over Rs 100.
That gap, nearly ₹59 per litre, is not a minor adjustment. It is largely taxation: central excise duties and state VAT. Even more striking is that this burden persisted during a period when crude prices were relatively low, the rupee was stable, and India had access to discounted imports.
Since June 2022, fuel prices have remained largely unchanged. During this time, global crude prices declined significantly, by as much as 30% in some phases. In a truly market-linked system, this should have translated into lower prices at the pump. It did not. The government acknowledged in Parliament that prices were unchanged, but offered no clear justification for why consumers were denied relief.
Part of the explanation lies with public sector oil marketing companies (OMCs). When crude prices spiked during the Ukraine war, these companies absorbed losses instead of passing the full burden to consumers. However, when crude prices later declined, instead of reducing retail prices, they used the margin to recover earlier losses and improve their balance sheets. From a corporate perspective, this may be defensible. From a public policy standpoint, it raises a critical question: should consumers bear the cost both when prices rise and when they fall?
This pattern is not new. Between 2014 and 2018, global crude prices dropped sharply, yet domestic prices did not reflect the full benefit. Instead, excise duties were increased. Later, when crude prices rose again, modest tax cuts were presented as relief. The structure ensured that government revenues remained protected, regardless of global volatility.
There is also a political dimension that cannot be ignored. Historical data shows that fuel prices often remain unusually stable in the months leading up to elections, only to be revised shortly afterward. This suggests that pricing decisions are not purely economic ,they are also strategic.
Today, as crude prices once again move upward toward $100 and beyond, the government maintains that it has not increased fuel prices. Technically, that statement is correct. But it obscures a deeper reality: current prices were already calibrated at levels consistent with much higher crude costs. In effect, consumers have been paying a “premium” for years.
The tax structure reinforces this dynamic. Combined central and state taxes can account for over 40% of the retail price of petrol. That means nearly half of what a consumer pays has little to do with the actual cost of crude oil. It is a fiscal tool,one that governments rely on heavily for revenue.
To be clear, taxation on fuel is not inherently unjustified. Governments need revenue to fund infrastructure, welfare, and public services. However, the issue here is not taxation per se, it is the lack of transparency and responsiveness. When prices rise, consumers are told it is due to global markets. When prices fall, the benefits are absorbed quietly through taxes or corporate recovery.
This asymmetry erodes trust. A genuinely market-based pricing system would work both ways, allowing consumers to feel relief when global conditions improve, not just pain when they worsen.
What India has today is not purely market pricing, nor purely state control. It is a hybrid system where risks are socialized, gains are retained, and accountability is diffuse.
Until there is greater transparency in pricing formulas, clearer tax rationalization, and a commitment to pass on benefits as well as burdens, the idea of “market-based fuel pricing” will remain more narrative than reality.
And for millions of consumers paying over ₹100 per litre, that distinction is not academic it is deeply personal.
