In New Delhi, petrol now costs about Rs 102.12 a litre. In Mumbai it is around Rs 111.18, in Kolkata Rs 113.51, and in Hyderabad Rs 115.73. For India’s 140 crore people, these figures are more than statistics. Fuel prices shape commuting costs, freight rates, food prices and, ultimately, inflation itself. The reasons lie in a combination of factors: heavy taxation, dependence on imported crude oil, exchange-rate movements, global energy market volatility and long-standing structural constraints in domestic energy production.
Tax anatomy: More than half the price is government levy
The pricing framework of imported fuel in India operates as a sequence of compounding values. By adjusting our calculation to reflect the real-world International Brent Crude price of $93.20 per barrel and a currency exchange rate of Rs 94.99 per dollar, the absolute cost of raw crude oil lands at Rs 68 per litre. When Oil Marketing Company (OMC) overheads, the true baseline Central Excise Duty of Rs 21.90 per litre, and dealer margins are sequentially added, they establish the actual baseline price charged to retail outlets. State-level dynamics then dictate the final consumer outgo; in Delhi, a 19.40% local Value Added Tax (VAT) applied directly onto the dealer’s price pushes the final actual sticker price to Rs 102.12 per litre. Table 1 shows the real-world pricing breakup for the National Capital.
Why is there a huge price difference among different states and cities? States impose VAT according their priorities, as it directly contributes to the coffers (Table 2, at the end).
Excise duty arc: A decade of fiscal extraction
When the current government took office in May 2014, central excise duty on petrol stood at Rs 9.48 per litre. As global crude prices collapsed—from more than $100 per barrel in 2014 to below $50 by early 2016—the Union government repeatedly increased fuel taxes. Between November 2014 and January 2016, excise duty on petrol was raised around 10 times, adding roughly Rs 12 per litre and taking the rate to about Rs 21.48. On March 14, 2020, the government increased excise duty by Rs 3 per litre on petrol and diesel. Less than two months later, on May 6, 2020, with international crude prices near historic lows and Brent trading below $30 per barrel, it raised petrol excise duty by another Rs 10 per litre and diesel duty by Rs 13 per litre. The move pushed central excise on petrol to a record Rs 32.98 per litre—the highest in Indian history. At prevailing retail prices, central excise alone accounts for well over a quarter of the pump price and, in several cities, more than one-third.
Excise duty now constitutes more than 20% of the retail petrol price, down from 26% at the peak, and 17.6% of the diesel price.
Revenue at stake: Why govt moves slowly
In FY24, central excise duty from petroleum products totalled Rs 2.74 lakh crore. — a 4.8% decline from FY23 but still a critical revenue line. In the first half of FY25 alone (April–September), excise collections from petroleum reached Rs 1.22 lakh crore, down more than 50% compared to the full FY24 figure, reflecting the cumulative impact of rate cuts.
Every Rs 1 per litre reduction in excise duty costs the Centre approximately Rs 13,000–14,000 crore in annual revenue.
Brent crude: Global variable India cannot control
India imports 88.6% of its crude oil—a record high reached in the April–January period of FY26, up from 87.3% in FY23, 85% in FY20, 84.4% in FY21, and 83.8% in FY19. As domestic demand grows and domestic production stagnates, import dependence deepens year by year.
On May 29, 2026, Brent traded at $92.05 per barrel—elevated sharply from its February 2026 level of $70.89 by the US-Iran military confrontation and effective disruption of the Strait of Hormuz, through which approximately 20% of global seaborne oil passes. The Monday price hike that pushed Delhi petrol to Rs 102.12 was the fourth increase in two weeks as oil marketing companies moved to recover losses accumulated over months. The critical pattern: when Brent moderated to $82 through 2024–25, Indian retail prices fell only marginally. When crude crossed $100 in mid-May 2026, prices rose within days. The asymmetry—rockets up, feathers down—is structural to India’s fuel pricing mechanism.
Rupee Multiplier: Paying more for the same barrel
Every barrel of crude India buys is invoiced in US dollars. The rupee-dollar exchange rate is therefore a silent but powerful input into the base pump price.
In 2022, the rupee averaged Rs 78.60 per dollar. By late 2025, it had depreciated to approximately Rs 90. On a $90 barrel of crude, that depreciation alone adds Rs 8 per litre to the base price with no change in the underlying commodity. When crude rises simultaneously with rupee depreciation—as in mid-2026—the compounding effect is severe and rapid.
International comparison: Same percentage, very different incomes
India’s 55% tax share aligns it with Western Europe, but the comparison breaks down entirely on income. A median British worker earns roughly six times the income of a median Indian worker. The same 55% tax incidence is categorically more punishing in India. The US at 15% reflects suburban infrastructure design and political resistance to fuel taxes. China at 35% and $0.45 per litre—a large developing economy taxing 20 percentage points below India’s rate—is the more instructive comparison.
European high fuel taxes are justified by environmental policy and heavily subsidised public transport as an alternative to private vehicles.
Why petroleum remains outside GST
GST launched in 2017 consolidated hundreds of taxes across the Indian economy. Petroleum products—petrol, diesel, crude, natural gas, and aviation turbine fuel—were explicitly excluded. Nine years later, they remain that way.
Import dependence: Structural vulnerability
Import dependence was always there. But the crucial thing is it is increasing by leaps and bounds every year. So is our vulnerability to geopolitical shocks and exposure to a current account deficit.
Inflation and the regressive burden
Fuel prices ripple through every price in the economy. Diesel is the fuel of freight. Higher diesel raises transport costs for vegetables, grains, manufactured goods, and e-commerce deliveries. Higher transport costs feed into the Consumer Price Index. CPI drives RBI rate decisions, which affect credit availability, housing costs, and business investment. The moderation of Brent to $82 through 2024–25 broadly coincided with CPI easing in India. The current spike toward $100 is already reversing that trend. The burden is regressive: lower-income households spend a higher proportion of income on fuel and on goods transported by fuel.
