The union government's decision to sharply cut excise duty on petrol and diesel is aimed at protecting consumers from a potential surge in fuel prices and ensuring uninterrupted domestic supply, Union Finance Minister Nirmala Sitharaman said on Friday.

The government reduced excise duty on petrol and diesel while simultaneously increasing export duty on aviation turbine fuel (ATF), in a move to cushion domestic markets from rising global crude oil volatility.

The government cut excise duty on petrol to ₹3 per litre from ₹13, while diesel excise duty has been reduced to zero from ₹10 per litre, marking one of the steepest reductions in recent years.

“The way the prime minister responds to such situations, in this case to ensure that the public is not burdened by shortage of LPG or fuel, the PM said that the price for consumers should not be increased,” Sitharaman said.

Ensuring supply, preventing price shocks

The finance minister said the excise cut was designed to ensure that oil marketing companies (OMCs) continue to import crude oil without passing on higher costs to consumers.

“In view of this, we took this decision to ensure that OMCs do not stop buying crude oil so that there is no shortage of fuel in the country,” she said.

India, which imports nearly 85% of its crude oil requirements, remains highly exposed to global price swings, particularly amid escalating geopolitical tensions in the Middle East.

The move comes at a time when international oil markets have turned volatile, with crude prices reacting sharply to developments around supply risks and potential disruptions to key shipping routes.

Export duty hike to retain domestic fuel availability

Alongside the excise duty cut, the government has increased export duty on ATF to ensure sufficient domestic availability of fuel.

“We have raised the excise duty on export of ATF to ensure its availability in the country,” Sitharaman said.

Balancing inflation and fiscal pressures

The excise duty reduction is expected to ease inflationary pressures, particularly through diesel, which plays a critical role in transportation and logistics.

Higher fuel costs typically have a cascading effect on food and goods prices, making fuel tax adjustments a key policy lever for inflation management.

However, the move is also likely to result in a major revenue impact for the government, as excise duty forms an important component of central tax collections.