State-owned oil marketing companies have incurred losses of more than ₹1 lakh crore over the past 10 weeks as they continued to shield Indian consumers from soaring global fuel prices triggered by the ongoing Middle East conflict. According to reports from The Economic Times, the three state-run fuel retailers - Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited - are currently suffering combined under-recoveries of around ₹1,600 crore to ₹1,700 crore per day. The losses stem from the gap between the actual cost of fuel and the retail selling price, known as under-recovery. As per The Economic Times, this has resulted in the three OMCs running record high under-recoveries, with the total under-recovery for the 10 weeks now well over ₹1 lakh crore.
Despite a 50% surge in input crude oil prices, petrol and diesel retail prices in India have remained unchanged at nearly two-year-old levels of ₹94.77 per litre and ₹87.67 per litre respectively. As reported by The Economic Times, domestic LPG prices were increased by ₹60 per cylinder in March, but are still below actual cost levels. The OMCs have continued uninterrupted supply of petrol, diesel and LPG despite disruptions in imports caused by the Middle East conflict, which affected nearly 40% of India's crude oil imports, 90% of LPG imports and 65% of natural gas imports. While countries from Japan to the United Kingdom have raised petrol and diesel prices by up to 30% since the start of the West Asia conflict, fuel prices in India continue at two-year-old levels.
The Centre has already reduced excise duties to absorb part of the burden, with excise duty on petrol cut to ₹3 per litre from ₹13, while diesel excise duty was reduced to zero from ₹10 per litre, resulting in a monthly revenue hit of around ₹14,000 crore for the government. According to sources quoted by The Economic Times, the government has taken a hit of ₹14,000 crore a month in cutting the excise duty. A decision on increasing petrol and diesel prices has now become a political call for the government, with sources stating there is no doubt that a fuel price hike has become inevitable, but the timing and quantum of increase have to be decided by the government.
The revenues that OMCs earn from selling fuel are the only source used to buy crude oil (raw material), build infrastructure to process it into fuel and lay a network to take the product to consumers. As reported by The Economic Times, for 10 weeks, the OMCs have managed to insulate the Indian market but now the cost is visible. Sources said they may have to borrow more to meet the working capital requirement (buying of crude oil). If elevated crude prices persist for an extended period, OMCs may require higher working capital borrowings and calibrated reprioritisation of some capex timelines. Despite the mounting pressure, strategic investments in refining expansion, biofuels, ethanol blending and energy security infrastructure are expected to continue with government backing.
