It took less than three weeks for the Indian government to completely reverse its fuel taxation logic.
On March 27, Finance Minister Nirmala Sitharaman stood up and announced a Rs 10 per litre cut in excise duty on both petrol and diesel — a significant sacrifice of revenue — to protect Indian consumers from global crude prices that had shot up from roughly $70 to $122 per barrel in a single month. The government, she said, would absorb the cost.
On April 11, quietly and without a press conference, the Department of Revenue issued a series of notifications that sharply raised export duties on diesel and aviation turbine fuel — taking the diesel export levy from Rs 21.5 per litre all the way up to Rs 55.5 per litre. The ATF export duty went from Rs 29.5 to Rs 42 per litre.
Both changes took effect immediately.
The domestic special additional excise duty on high-speed diesel was also raised — to Rs 24 per litre — and the road and infrastructure cess was lifted to Rs 36 per litre.
The two moves are not contradictions. They are two sides of the same strategy: one to keep pump prices in check for ordinary Indians, the other to make sure Indian refiners don't simply export the fuel for higher profits abroad while domestic supply tightens.
The Iran War Connection
None of this happens without the war.
The US-Israel strikes on Iran that began on February 28 triggered one of the sharpest oil price spikes in recent memory. Brent crude, which was sitting below $70 a barrel before the conflict, surged past $100 and touched $122 at its peak. That's not a small fluctuation. That's the kind of price movement that rewrites import bills and breaks government budgets.
India imports roughly 90% of its crude oil requirement. The Strait of Hormuz, through which about 40% of India's crude imports pass, was blockaded by Iran at the start of the war. A two-week ceasefire was announced on April 7, but the Strait is still only barely functioning — just 12-16 ships transiting daily against a pre-war average of over 100.
Every day that oil flows through the Strait at a fraction of normal capacity is a day India's fiscal arithmetic gets harder.
When crude prices spiked in March, Indian oil marketing companies — IOCL, BPCL, HPCL — found themselves selling petrol and diesel at retail prices that hadn't changed, while buying crude at prices that had nearly doubled. The gap between what they were paying and what they were charging consumers was running at approximately Rs 24 per litre on petrol and Rs 30 per litre on diesel, according to Petroleum Minister Hardeep Singh Puri.
The March excise cut was meant to close that gap somewhat and prevent the OMCs from hemorrhaging losses that would eventually come back as government bailouts anyway. The government chose to take the revenue hit upfront rather than let the crisis compound.
The April 11 notification takes a different approach. Rather than managing the domestic price, it manages the supply.
Why the Export Duty Matters
When global crude prices are high, the spread between what it costs to refine fuel in India and what you can sell it for internationally becomes very attractive. Indian private refiners — Reliance, Nayara Energy — have the capacity to produce far more diesel and ATF than the domestic market needs in normal times. When international prices are elevated, the temptation is to export as much as possible.
That's fine during normal times. During a supply crunch, it isn't.
By raising the export duty on diesel from Rs 21.5 to Rs 55.5 per litre — a hike of 158% in one notification — the government is essentially making it financially unattractive to export domestic diesel. The math changes completely. You could earn more selling abroad before this notification. After it, the margin is largely taxed away.
The message is: keep the fuel here.
The same logic applies to ATF. Jet fuel accounts for up to 40% of an airline's operating costs. International carriers transiting through India, and domestic carriers refuelling here, all draw on ATF supply. If that supply gets diverted to export markets during a global disruption, Indian airlines face both a shortage and a price shock. The government has separately capped the monthly increase in ATF prices for domestic airlines at 25% for April — another intervention designed to keep the aviation sector from buckling.
The Department of Revenue's notification was unusually blunt in its reasoning. The revisions were necessary, it said, because "circumstances warranted immediate action."
That phrase — "immediate action" — is the government's way of signalling that this is crisis management, not policy reform.
What It Means at the Ground Level
For the average person filling up their vehicle, the immediate answer is: not much, directly.
The export duty hike targets refiners and exporters, not the pump. The domestic excise and cess changes alter the revenue structure, but the government has so far kept retail prices frozen to avoid passing costs to consumers. That political commitment — to hold the line on pump prices — has held through the entire Iran war period.
But "immediately" is doing a lot of work in that sentence.
Every trucking company, every logistics operator, every farmer using a diesel irrigation pump, every bus fleet — they all know that the government can only hold this line while global crude prices permit it. The excise cuts in March bought time. The export duty hike in April buys supply security. Neither solves the underlying problem, which is that crude at $100-plus per barrel is unsustainable for an economy that imports 90% of its oil needs.
If the Iran war ceasefire holds and the Strait returns to full operation, crude prices could fall back toward $85-95 a barrel, which — while still high — is manageable. If the ceasefire breaks down, or if the Islamabad talks (which collapsed without a deal on Sunday morning) lead to renewed strikes, the whole calculation changes again.
The government has room to manoeuvre right now. That room will shrink if the crisis continues.
The Bigger Economic Picture
India's private-sector activity slowed to its lowest level since October 2022 in March, according to HSBC's flash Purchasing Managers' Index. Companies surveyed cited the Middle East conflict, unstable market conditions, and intensifying cost pressures. Cost inflation is near a four-year high.
If crude oil settles at $85-95 per barrel for the year, India's additional import bill could run to $40-50 billion — more than 1% of GDP — according to analysts at Renaissance Investment Managers. India's current account deficit, which was projected at 0.7-0.8% of GDP for the year, could widen to 1.9-2.2% if high oil persists.
India's March CPI inflation climbed to 3.3% on an annual basis. Energy costs were the primary driver. That's not a runaway number, but the direction matters.
The government's fuel tax moves — the March cut, the April export duty hike — are not economic policy in the traditional sense. They are emergency fiscal firefighting during a geopolitical crisis that India did not start and cannot end. New Delhi is managing the damage while watching Islamabad, Washington, and Tehran decide what happens next.
Sources
- Business Today
- Business Standard / TBS News.
- CNBC / Reuters