The small increase reflects the Centre's broader strategy of protecting consumers from the full impact of the global oil shock, the official said.
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NEW DELHI — The marginal INR 3 per litre hike in petrol and diesel prices announced by the government is a mere drop in the bucket compared to the huge losses that the public sector oil companies are absorbing due to soaring global prices of crude oil, which have crossed $100 a barrel, a senior official said on Friday.
The small increase reflects the Centre's broader strategy of protecting consumers from the full impact of the global oil shock, the official said.
Sources said petrol under-recoveries are currently estimated at around INR 26 per litre, while diesel under-recoveries are as high as INR 82 per litre. In that context, officials indicated that even a modest INR 3 hike would account for only a fraction of the financial burden currently being borne by government-owned Indian Oil, BPCL, and HPCL.
According to top sources, the state-run oil marketing companies, along with the government, are currently absorbing losses of nearly INR 1,000 crore every day to prevent a sharp increase in retail fuel prices despite the surge in global crude oil prices triggered by escalating tensions in West Asia.
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The government's message, sources said, is clear: it does not want Indian consumers to bear the full burden of rising global crude prices through steep increases in pump prices.
Officials also said a sharp fuel price hike would have widespread inflationary consequences across the economy by increasing transportation costs, pushing up food prices, and hurting household budgets at a sensitive time for domestic demand.
The Centre is also shielding the country’s agriculture sector from the global price shocks. Sources pointed out that the government is already bearing a fertiliser subsidy burden estimated at nearly INR 2.25 lakh crore to protect farmers from rising input costs.
Officials said the broader policy approach currently is to focus on reducing fuel consumption gradually and improving energy efficiency rather than imposing sudden price shocks on consumers. Prime Minister Narendra Modi, sources added, has been pushing for lower fuel consumption patterns and reduced import dependence instead of aggressive retail price hikes.
The concerns stem from India's growing import burden amid elevated crude oil prices. Government sources described the situation as a "massive twin drain" caused by rising oil and gold imports. India's annual crude oil import bill is estimated at around INR 12-15 lakh crore, with every $10 increase in crude prices adding nearly $13-14 billion to the country's import burden.
Officials pointed out that the current surge in oil prices is driven by the escalating US-Iran conflict and the choking of the Strait of Hormuz, through which 20 per cent of the world’s energy exports transit during normal times.
"India has zero control over these geopolitical developments," a source said, adding that the government is consciously trying to avoid transferring the entire external shock onto consumers.
Officials also argued that India's macroeconomic fundamentals are far stronger than during the 2012-13 crisis period. The current account deficit remains below 1.5 per cent of GDP compared with nearly 5 per cent during the earlier crisis, while inflation remains relatively contained despite global volatility.
Indian Oil officials said the company’s refineries are currently operating round the clock at their maximum capacity to ensure there is no shortage of fuel.
The country has 60 days of crude stocks, which is the maximum required by the refineries, so there is no problem at present as far as production of fuels is concerned, an official added.