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The surge follows disruptions in the Strait of Hormuz due to the Iran conflict, a vital international oil corridor, which has driven fuel prices sharply upward worldwide. While many nations passed on the full cost to consumers immediately, India maintained steady prices for nearly 76 days, despite crude oil surpassing $100 per barrel. During this period, under-recoveries amounted to approximately Rs 1,000 crore daily.
Officials emphasized that the decision to absorb the global price shock was deliberate. India imports 80-85 percent of its crude oil, and each $10 rise in crude adds $13-14 billion to the import bill. A full pass-through of global prices would have required domestic fuel prices to increase by 200-300 percent, disproportionately affecting the most vulnerable populations, including farmers, truck drivers, and daily wage earners reliant on diesel.
Globally, some countries implemented price hikes of 20, 40, or even 90 percent, yet India avoided emergency restrictions, rationing, or sharp increases. Prior measures included reducing excise duty by Rs 8 on petrol and Rs 6 on diesel to protect consumers. As of May 15, petrol under-recovery stood at Rs 26 per litre, while diesel under-recovery reached nearly Rs 82 per litre.
India’s annual crude import bill is estimated at Rs 12-15 lakh crore. Gold imports have surged to nearly Rs 6 lakh crore, creating what officials describe as a "massive twin drain" on foreign exchange. The government has urged voluntary conservation, requesting reductions in fuel consumption, gold purchases, and non-essential foreign travel. Gold, now India’s second-largest import, represents nearly billion, while outbound tourism costs total -30 billion annually.
The administration has sought to distinguish this external geopolitical shock from prior economic crises. Key indicators remain strong, with the current account deficit below 1.5 percent and inflation relatively controlled. Similar strategies are being applied in other sectors, such as fertilizer, where subsidies continue to shield farmers while domestic alternatives like Nano Urea are promoted.
Despite shipping costs through Hormuz reportedly rising to $2 million per voyage, India has opted for a measured approach, absorbing losses and issuing only a modest Rs 3 price adjustment. In percentage terms, the increase represents 3-3.5 percent on a base of approximately Rs 95 per litre, far below adjustments seen in other nations.
This restrained approach underscores India’s commitment to protecting consumers while navigating a complex global oil crisis. By prioritizing voluntary conservation over rationing, the government has sought to shield citizens from immediate economic shock while managing broader macroeconomic stability.
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