India’s state refiners are losing about Rs 1,600 crore a day by selling petrol and diesel below cost, and officials warned that those mounting shortfalls may force a fuel-price increase within days. Households, transport operators, farmers who depend on diesel and the balance sheets of Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum are already being hit, while the central government is absorbing a big share of the bill through excise cuts. The immediate cause is rising crude prices and a weaker rupee, and refiners have begun restricting credit as they look to preserve cash.

India’s three dominant public-sector refiners are facing rapid stress after a sharp rise in international crude and a depreciation of the rupee pushed landed fuel costs well above current pump prices. Industry analysts and several accounts put the current daily loss at about Rs 1,600 crore, a figure that represents the gap between government-protected retail prices and cost-based wholesale values. One report said losses briefly peaked at nearly Rs 2,400 crore a day before moderating to around Rs 1,600 crore.

How the shortfall grew

The immediate driver is crude. Officials said the average cost of crude bought by Indian refiners rose from about $69 a barrel in February to roughly $114.4 a barrel last month. Brent was trading near $100 a barrel and the Indian oil basket was around $99.69 a barrel in recent trading. Another account put the May average so far at about $105.4 a barrel. Officials also pointed to rupee weakness as an additional pressure on landed costs.

The central government has tried to shield consumers by cutting excise duty on petrol and diesel. Officials confirmed reductions in excise duty, and one source estimated those cuts were costing the government about Rs 14,000 crore a month. Reports vary on the size of the per-litre cut. One account said the reduction was Rs 10 per litre on both petrol and diesel, while another gave petrol a Rs 13 cut and diesel Rs 10. Industry analysis translated the current cost gap into approximate shortfalls of about Rs 18 a litre on petrol and Rs 35 a litre on diesel, reflecting how far current pump prices sit below cost-based retail levels.

How that daily shortfall aggregates depends on the method. Officials cited one figure of roughly Rs 30,000 crore a month in losses from selling petrol, diesel and LPG below market rates. An industry commentator warned that, if the present gap persisted, company losses could reach Rs 45,000-50,000 crore a month. That higher figure comes from a single industry estimate and sits above the official snapshot.

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Macro effects and immediate responses

Public refiners have already taken steps to shore up liquidity. Dealers and industry contacts reported that Indian Oil suspended a five-day revolving credit facility. Bharat Petroleum and Hindustan Petroleum have been insisting on advance payments from retail outlets to limit off-take on credit. One analysis noted that the three state-owned refiners together supply the bulk of retail fuel distribution and that roughly 90 percent of the country’s more than 100,000 service stations are supplied by them.

Those operational moves reflect a need to preserve cash while price relief measures continue.

Officials warn that allowing pump prices to rise sharply would feed into headline retail inflation. One account put retail inflation at 3.4 percent, and officials said fiscal headroom for indefinitely supporting prices is limited. Industry voices also cautioned that prolonged suppression of pump prices will weaken refiners’ balance sheets and curtail necessary investment, a prospect that could affect refining capacity and downstream spending in the medium term.

The fiscal cost to the central government is already material. Beyond the Rs 14,000 crore monthly estimate for excise cuts, sources say the government is bearing a big portion of the support effort. That creates a political and budgetary trade-off at a time when crude markets are volatile and the currency is under pressure.

There are contradictions in the public accounting. Daily-loss figures are now commonly reported at about Rs 1,600 crore, but a peak-of-Rs 2,400 crore is recorded by one report. Monthly-loss totals vary from an official-cited Rs 30,000 crore to an industry projection of Rs 45,000-50,000 crore. The size of the excise-duty cut is also reported inconsistently across accounts. The reports that refiners have suspended credit or demanded advance payments and the 90 percent coverage figure for the three state refiners are documented in a single source in the set, which underlines how rapidly the situation is shifting.

Officials and company sources said state-run retailers may raise petrol and diesel prices in the coming days to curb mounting losses. Refiners are already seeking to control cash outflows by restricting credit and insisting on advance payments from dealers. That suggests a near-term adjustment in policy is possible if crude prices and the rupee don't retreat.

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Officials and company sources said state-run retailers could lift petrol and diesel prices within days to curb a daily shortfall of about Rs 1,600 crore.

This article was created with AI assistance.