Ibn-Azaan
In a Punjab wheat field last week, farmer Gurpreet Singh loaded sacks of urea onto his tractor at the same subsidised rate he paid six months ago. In a Delhi transport hub, trucker Ramesh Kumar filled his diesel tank for ₹85 a litre—unchanged despite global crude leaping from $70 to $122 a barrel. On the surface, India looks untouched by the Iran war that has choked the Strait of Hormuz and sent energy prices soaring. But this stability carries a price tag measured in tens of thousands of crores, borne quietly by taxpayers, oil companies and the national exchequer.
India imports more than 85 per cent of its crude, with 55-57 per cent still flowing from the Middle East—roughly 2.5 to 2.7 million barrels a day threading the narrow Hormuz chokepoint. When the conflict shut that artery, global benchmarks spiked. Most nations let pump prices follow. India did not. On March 27, the finance ministry slashed special excise duty on petrol from ₹13 to ₹3 a litre and wiped it out entirely on diesel. The stated goal: protect households and keep inflation in check. Oil Minister Hardeep Singh Puri framed it bluntly on X: “The Modi Government had two choices—either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that the Indian citizen is insulated from international volatility.” He added that public-sector oil companies were already absorbing losses of ₹24 a litre on petrol and ₹30 on diesel. The government’s tax cut reduced that burden, but at a fresh cost: ₹70 billion in lost revenue every fortnight, offset only partly by new export taxes, for a net fortnightly hit of ₹55 billion.
Public-sector refiners—Indian Oil, Bharat Petroleum, Hindustan Petroleum—control 90 per cent of retail outlets. They have not passed on the full global surge. Daily under-recoveries now run at ₹24 billion. Shares of BPCL and HPCL initially rose on the duty news, then settled as investors weighed the longer arithmetic. Finance Minister Nirmala Sitharaman assured Parliament there would be “no shortage of petrol, diesel and jet fuel” and that the Centre would stand by the marketing companies. Consumers feel nothing—at least not yet.
The same invisible hand props up the farm sector. Urea and DAP prices have jumped 20-35 per cent globally because natural gas and LNG feedstock—60 per cent of which India sources from Qatar and the UAE for domestic urea plants—have become costlier. Roughly three-fifths of India’s nitrogen fertiliser imports still come from Gulf nations. With the Hormuz route disrupted, freight costs have climbed and supply chains have lengthened. Crisil Intelligence director Pushan Sharma estimates the fertiliser subsidy bill could rise more than 10 per cent in the current and next fiscal years. The budget had already pencilled in ₹1.71 trillion for 2026-27; analysts now warn it could cross ₹2.15 trillion if prices stay elevated. For a kharif sowing season that begins in June, any shortfall or further price spike will hit millions of smallholders already squeezed by erratic monsoons.
Economists watching the fiscal ledger see the same pattern repeating from the 2022 Ukraine shock. Tanvee Gupta Jain, chief India economist at UBS, notes that every sustained rise in crude “weighs on consumer sentiment, real incomes and spending, while squeezing industrial margins.” Aditi Nayar of ICRA points to West Asia’s grip on 14 per cent of India’s exports and 20 per cent of imports: “The conflict poses meaningful risks to trade flows through higher freight, supply delays and energy uncertainty.” Radhika Rao of DBS Bank lists three transmission channels—risk sentiment, energy pricing and economic activity. A prolonged $100-plus crude scenario, according to Elara Securities, could inflate the government’s annual expenditure by ₹3.6 trillion through higher subsidies and lower tax receipts. The fiscal deficit target for 2026-27 is 4.3 per cent of GDP; every ₹2-per-litre duty cut already costs roughly ₹32,000 crore annually, or 0.1 per cent of GDP. Scale that to the current ₹10 cut and the arithmetic turns uncomfortable.
Moody’s Analytics has warned that India’s limited strategic petroleum reserves—currently covering less than 10-25 days at normal consumption—leave it more exposed than Japan or South Korea, which maintain far larger buffers. Instead of drawing down reserves aggressively, New Delhi has leaned on price caps, tax relief and subsidies. The approach worked in the short run after Russia’s invasion of Ukraine. It is being repeated now. But repeated short-term fixes erode fiscal space. Bond yields have already climbed; the 10-year paper touched 6.95 per cent, its highest in 20 months, on fears the deficit target will slip.
Politically, the timing is no coincidence. Four states and one Union Territory head to polls next month. Voters remember fuel-price spikes as pocketbook pain. By absorbing the shock, the government buys time and goodwill. Yet critics, including Congress MP Manish Tewari, argue that years of windfall revenue from low crude prices were not fully used to build deeper buffers or accelerate domestic production and renewables. India has diversified crude sources to 40 countries and now routes 70 per cent of imports outside Hormuz, up from 55 per cent. That helps, but it does not eliminate vulnerability.
The deeper risk is inflation that has so far been kept at bay. Fuel feeds transport, manufacturing, logistics and cold chains. Pass-through the full global price and food inflation—already sensitive—would surge. Keep it suppressed and the subsidy bill balloons, crowding out capital spending on roads, ports and green energy. UBS’s Gupta Jain warns of a 110-120 basis-point widening in the current-account deficit if oil stays high, pushing it well above the sustainable 2 per cent of GDP.
This is not alarmism; it is arithmetic. India’s economy grew 7.6 per cent last fiscal on the back of steady fuel prices and rural spending. That growth engine now runs on borrowed fiscal time. Diversifying energy—ramping up solar, offshore wind, green hydrogen and domestic gas exploration—cannot happen overnight, but neither can the fiscal hole be papered over indefinitely. Building genuine strategic reserves beyond the current 5.33 million tonnes, reforming fertiliser subsidies to discourage overuse of urea, and accelerating biofuel blending all demand political will that is easier to summon when the pump price is stable.
For now, the shield holds. Gurpreet Singh’s tractor runs, Ramesh Kumar’s truck rolls, and millions of households cook and commute without feeling the global tremor. But every litre of subsidised diesel and every sack of price-capped urea is being paid for somewhere—by taxpayers tomorrow or by slower growth and higher deficits the day after. The calm is real. The cost is mounting. How long India can afford to keep writing cheques the world cannot see is the question policymakers must answer before the next crisis, not during it.
