Fuel Price Shock After Iran Conflict: Centre Cuts Petrol Duty, Plans More Relief for Vulnerable Sectors

With apprehensions of a long conflict in West Asia, the central government is considering an additional package to support some of the weaker segments of the economy. The key sectors to be supported are the micro, small, and medium enterprises (MSMEs) segment, as well as lowering the rate of inflation. According to V. Anantha Nageswaran, who is the Chief Economic Adviser to the government, "The government needs to think of giving relief to those who are affected today, but it also needs to think of what to do with the money in the long term."

The government has already lowered the excise duty on petrol by ₹3 per litre to reduce the cost of higher fuel prices, with diesel currently being completely duty-free. With the US and Israeli strikes on Iran, crude oil prices have already gone up by 50% to reach an average of $100. This is bound to have a direct impact on India, as the country imports approximately 88 percent of its oil needs.

To provide relief to the export sector, the government has launched a relief scheme worth ₹497 crore. Its purpose is to support exporters struggling with rising freight costs, insurance premiums, and war-related risks. The duty and tax exemption scheme on export products has also been reinstated to provide some relief to exporters from cost pressures. The impact of West Asia tensions is also clearly visible on shipping routes. Increased security risks around the Strait of Hormuz are forcing ships to take longer routes, increasing freight costs and creating uncertainty in the supply chain.

Despite the ongoing tensions in West Asia, the supply of fertilizers in the country remains generally normal. IFFCO, the world's largest fertilizer cooperative, claims that farmers will not face any shortages in the upcoming Kharif season. The crisis could lead to a reduction of 600,000 to 900,000 tonnes in fertilizer production.

The government is planning emergency measures, including imports from countries like Morocco and other global suppliers to cover any potential shortages. Satyajit Pradhan, senior general manager of IFFCO's Amla (Bareilly) plant, said there were no disruptions in gas supply, ensuring both fertilizer production and distribution were running smoothly. He added that despite the current situation, the company's production and marketing activities remained normal.