India takes a ‘huge hit’ on tax revenue to keep fuel prices from surging during the Iran war
People line up to fill up at a gas station in Guwahati, India, on March 26, 2026.
David Talukdar | Anatolia | Getty Images
government of india Tax revenues took a “huge hit” Petroleum and Natural Gas Minister Hardeep Singh Puri said on Friday after New Delhi reduced central excise duties on fuel for domestic consumption.
The Indian government late Thursday cut central excise taxes on gasoline and diesel for domestic consumption by 10 rupees ($0.11) per liter in a bid to prevent pump prices from rising as the Iran war disrupts global energy supplies.
Puri said in a post on
The government has decided to bear the cost of rising energy prices and prevent retail fuel prices from increasing, he said, adding that these tax cuts will reduce the losses faced by oil companies, which are around 24 rupees per liter for gasoline and 30 rupees per liter for diesel.
According to a government notificationWhile excise duty on petrol will be reduced from 13 rupees to 3 rupees per liter, diesel will be zero rupees from 10 rupees per liter.
As an additional measure, the government has increased taxes on diesel exports to 21.5 rupees per liter and taxes on aviation turbine fuel to 29.5 rupees per liter. Finance Minister Nirmala Sitharaman said this was done to “ensure adequate availability of these products for domestic consumption”.
“This Provides protection to consumers It is due to the increase in prices,” Sitharaman said in a post on X on Friday.
Oil is a sensitive issue
India is the world’s third largest oil importer and second largest consumer of liquefied petroleum gas. It is grappling with panic buying amid rising energy costs and supply shortages due to the closure of the Strait of Hormuz.
“The longer energy supply disruptions last, with oil prices above $100 per barrel, the higher the structural risks to the economy, especially if domestic policy responses are not carefully managed,” Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence, told CNBC.
The Indian government’s increase in retail oil and gas prices could raise inflation and slow growth. However, covering high costs will cause the fiscal deficit to increase.
The impact of the conflict in the Middle East is already visible in key macroeconomic indicators.
HSBCThe flash Purchasing Managers’ Index released on Tuesday showed India’s private sector activity slowed to its lowest level since October 2022 in March due to weak domestic demand.
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Companies surveyed cited conflict in the Middle East, unstable market conditions and intensifying inflationary pressures as factors weighing on growth. Cost inflation is currently near its highest level in four years.
If oil settles at $85-95 per barrel after the war, it could lead to incremental outflows of $40 billion to $50 billion (more than 1% of India’s GDP), according to Pankaj Murarka, CEO and Chief Investment Officer of Renaissance Investment Managers, speaking to CNBC’s “Inside India” on Friday.
This could reduce India’s economic growth from 7.2% to 6.5%, he said.
