The Narendra Modi government on Friday hiked the retail prices of petrol and diesel, two-and-a-half months into the West Asia war that has pushed up international crude rates and put immense financial strain on state-run oil marketing companies.
In Calcutta, the retail price of petrol at Indian Oil Corporation pumps went up by ₹3.29 a litre to ₹108.74, while that of diesel increased by ₹3.11 a litre to ₹95.13.
This is the first increase in transportation fuel prices in four years and comes 16 days after a bunch of state elections, including one in Bengal.
Experts who track the petroleum sector said the rise was modest compared with the spurt in feedstock (crude oil) cost and that a further hike could not be ruled out. They also warned of inflation across the board as higher fuel prices would raise logistics costs.
Sourav Mitra, a partner (oil and gas) at Grant Thornton Bharat, said there was a “clear headroom” for further “calibrated price hikes” if the crude rates remained elevated and the government decided not to burden the oil marketing companies further.
Oil marketing companies (OMCs) such as IOC, Bharat Petroleum and Hindustan Petroleum had been reporting under-recoveries of ₹1,000 crore from the sale of petrol, diesel and LPG, with the government declining to raise retail prices in keeping with the surge in crude rates.
The average cost of crude oil for India has risen by over 50 per cent compared with the February figures, with the West Asia war choking the movement of petroleum cargo through the Strait of Hormuz, a key artery for global oil shipments.
“Following the recent ₹3/litre fuel price hike, OMCs continue to face material under-recoveries. Prior to the price hike, under-recoveries were at around ₹13-15/litre for petrol and ₹17-18/litre for diesel,” Mitra said in a note.
“Hence, it had been projected that almost ₹10 per litre retail hike would be needed to cover 50 per cent of under-recoveries. In this context, the current ₹3/litre increase remains below those estimates.”
As of now, the rise is expected to modestly hit the consumer price index — a measure that tracks inflation at the retail level.
“We expect the fuel price hike to push up the average CPI inflation print by 25 bps (0.25 per cent) on an annualised basis,” Aditi Nayar, chief economist at the rating agency ICRA, said.
“Since the hike was effected mid-month, this impact will be spread over the May and June 2026 CPI inflation prints. We are now revising our forecast for May 2026 to 4.3 per cent from 4.1 per cent.”
However, the wholesale price index (WPI), which measures inflation at the factory level, had already reached 8.3 per cent in April, the highest in three-and-a-half years, as a direct impact of the West Asia war.
“The current spike in WPI is directly linked to the West Asia conflict, with commodities and production processes impacted,” credit rating agency Crisil said in a note.
Diesel accounts for about 40 per cent of India’s total fuel sales, while petrol’s share is more than 17 per cent. The modest increase is partly about containing inflation, already a major concern with a weak rupee breaching the ₹96-to-the-US-dollar mark for the first time on Friday and oil prices persistently staying above $100 a barrel.
The country’s balance of payments may stay in deficit for a third straight year, economists estimate.
While petrol and diesel prices have been raised after four years, the government has increased domestic LPG prices moderately (₹60 for a 14.2kg cylinder) and commercial gas prices astronomically (₹1,300 for a 19kg cylinder). It has also raised aviation fuel prices. On Friday, CNG prices in Delhi and Mumbai were also increased by ₹2 a kilo.
