The Centre’s move to increase cooking gas prices at a time of falling global oil prices defeats understanding. The price of benchmark Brent crude oil has been on a sharp down curve in the last week falling 18 per cent from around $73 a barrel to close to $60 a barrel mark. The logical expectation from the Centre would have been for a cut in retail prices of fuels in the country. Belying such expectations, it chose to raise cooking gas price by ₹50 a 14.2 kg cylinder on Monday while simultaneously increasing special additional excise duty on petrol and diesel by ₹2 a litre.-

The reason? Oil marketing companies (OMCs) are said to be incurring massive under-recoveries in cooking gas — estimated at ₹41,383 crore — by selling to retail consumers at prices below the landed price. About 60 per cent of cooking gas consumed in the country is imported. The Centre was also rather swift in appropriating the benefit of falling oil prices by raising excise duty on petrol and diesel. The plan appears to be to use the higher excise revenue — estimated at ₹32,000 crore for the whole year — to compensate the OMCs for their cooking gas under-recoveries. Together with the price increase, which will yield them another ₹5,000-7,000 crore, the OMCs can smile all the way to the bank. But was this the best way to handle the issue? Probably not.

With oil prices falling off the cliff, the pressure on OMCs would have eased in the normal course. The process would have been even quicker had the Centre not increased excise duty on petrol and diesel, forcing the OMCs to bear the burden. From the Centre’s viewpoint though, this is a very smart move. It has shored up its revenues first, never mind the consumer. Probably, it wanted to pre-empt States who may have been equally tempted to increase sales tax if oil companies reduced retail prices. While the importance of revenues cannot be overemphasised, the point is that the Centre may have lost an opportunity by not passing on the benefit of lower crude oil prices to consumers. Apart from its favourable impact on inflation, lower fuel prices may also have served to lift consumer sentiment in these difficult times. Combined with the rate cut by the RBI on Wednesday and the lower tax regime that began on April 1, lower fuel prices may have encouraged consumers to open their purses. Oil Minister Hardeep Puri has said that OMCs are facing inventory losses and therefore are unable to cut prices. This is not convincing because inventory losses are a fact of business that OMCs have to manage; remember that in a rising oil price regime, they enjoy inventory gains.

These developments bring back into focus the reforms, or their absence thereof, in the oil industry. Successive governments at the Centre, whether NDA or UPA, have been unwilling to let go of controls on pricing of petroleum products. Though technically fuel pricing is said to be freed, the fact is that the Centre always has its way with the OMCs, which are its extended arms anyway. This situation has to change.

Published on April 10, 2025