Govt Defends Soft Approach To Fuel Crisis

'PM Modi is trying to reduce the volume of fuel consumed instead of raising prices sharply.'

Amid the prolonged West Asia conflict, that has compelled many countries to pass on higher fuel prices to consumers and enforce emergency mandates such as 'work from home', India has refrained from sharp price hikes that could hurt the vulnerable, while advocating voluntary consumption cuts and conservation steps, according to senior government officials.

The remarks assume significance coming on a day that oil marketing companies raised the retail prices of petrol and diesel by Rs 3 per litre, after holding the price line through the West Asia conflict so far.

Fuel Price Shock Contained

Officials said the government's strategy is to shield consumers from the impact of the energy shock resulting from the ongoing West Asia crisis, and nudging people towards voluntary consumption cuts is a much better strategy the alternative of massive fuel price increases that many countries have resorted to.

"Fuel prices have risen 30 to 50 per cent in Southeast Asia, 30 per cent in North America, and 20 per cent in Europe due to the crisis, but India has held the line. 82 countries have been forced to implement mandatory emergency measures like fuel rationing, school closures, and work-from-home," said a senior government official, pointing out the contrast in India's softer approach of leading through "voluntary conservation".

Voluntary Fuel Conservation Push

"Passing on the full price shock would require a 200–300 per cent price hike.

"Such a price shock would disproportionately hurt the bottom 20 percent of the population, farmers, truckers, and autorickshaw drivers. Therefore, PM Narendra Modi is trying to reduce the volume of fuel consumed instead of raising prices sharply," said an official requesting anonymity.

India imports around 85 percent of its crude oil requirements and every $10 per barrel rise in the price of crude adds $13 billion to $14 billion to the country's import bill.

The oil companies and the government have been absorbing daily losses of Rs 1,000 crore, amounting to Rs 1 trillion per quarter, to ensure pump prices stay unchanged.

The under-recoveries of oil companies stand at Rs 26 per litre on petrol and Rs 81.90 per litre on diesel.

Earlier, the government had cut excise duty by Rs 8 per litre on petrol and Rs 6 per litre on diesel in May 2022, and this March, it slashed those duties further by Rs 10 per litre for both these fuels.

Separately, the Centre has spent Rs 2.25 trillion to help farmers by subsidising fertiliser costs of about Rs 2,200 per bag, so that the effective price for agriculturalists is Rs 242.

Strait Of Hormuz Disruption

Officials sought to highlight the sharp distinction between this crisis and past economic downturns, because the current situation is not a result of domestic mismanagement but an "external geopolitical shock" caused by the US-Iran conflict and disruptions in the Strait of Hormuz, over which India wields no control.

Yet, macroeconomic indicators have been defended better with inflation still under control and the current account deficit (CAD) reined in at under 1.5 per cent, compared to crisis levels of 5 per cent witnessed in 2012-2013.

India's Dollar Saving Strategy

"The PM's specific requests, such as cutting foreign travel, pausing gold purchases, and reducing fertiliser use, are highly calculated moves to save dollars with minimal economic damage," said another official.

Terming gold a non-productive asset that drains forex, the officials said that halving gold imports could also halve the estimated CAD for the country.

Indian households own 30,000 tonnes of gold valued at $5 trillion, and it is the country's second-largest import item with inbound shipments worth $72 billion in FY26.

Officials reckoned that pausing gold purchases for a year is sensible since middle-class families can exchange old jewellery instead.

Gold Imports Under Scrutiny

On the PM's nudge to avoid foreign travel, officials said outbound tourism costs India $28 billion to $30 billion a year, and thus, this could be the "softest dollar-saving lever with the least economic damage".

Moreover, halving chemical fertiliser use is necessary because India imports these materials through the vulnerable Strait of Hormuz, so reducing their use lowers the massive subsidy burden, prevents soil degradation, helps transition farmers to smarter, domestic alternatives like nano urea.

On attempts to turn the Strait of Hormuz effectively into a "private toll corridor" with charges of up to $2 million per voyage, officials asserted that "India does not negotiate from a position of fear" and hence, the nudge for people to conserve fuel "is an act of refusal to be extorted".

Feature Presentation: Ashish Narsale/Rediff