Explaining the price hike announced on Friday morning, the government asserted that while a full pass-through of the global oil shock would have required retail prices to skyrocket by 200-300 per cent, they are actively shielding the public from such extreme volatility. According to government sources, the state-owned oil marketing companies (OMCs) limited the increase to just ₹3 per litre for petrol and diesel. On a base price of approximately ₹95, this represents a modest 3.5 per cent adjustment, a move the government insists is designed to absorb the brunt of international price surges and protect citizens from the true market impact.
According to sources, OMCs and the government have been absorbing daily losses of approximately ₹1,000 crore (totaling over ₹1 lakh crore per quarter) to ensure pump prices stay unchanged. Under-recoveries stand at around ₹26 per litre on petrol and ₹81.90 on diesel (before the hike of ₹3), a source said. He also informed that government has already taken a hit by lowering excise duty on petrol and diesel by ₹10 a litre, which will have a revenue implication of ₹1 lakh crore during current fiscal year.
Another source emphasised that the government asking for voluntary consumption cuts is much better than the alternative: massive price increases. India is experiencing a “massive twin drain” with crude oil imports costing ₹12-15 lakh crore yearly and gold imports surging to ₹6 lakh crore. India imports approximately 80-85 per cent of its crude oil requirements. “Every $10 rise in the price of a barrel of crude adds $13-14 billion to the country’s import bill. Because petrol and diesel demand in India is relatively price-inelastic, passing on the full price shock would require a 200–300 per cent price hike,” he said.
Further, such a price shock would disproportionately hurt the bottom 20 per cent of the population, farmers, truckers, and auto-rickshaw drivers. Therefore, reduction in volume consumption is better option, he added.
The first source highlighted that present crisis is an ‘External Shock,’ and not ‘Domestic Mismanagement.’ “The current situation is an ‘external geopolitical shock’ caused by the US-Iran conflict and disruptions in the Strait of Hormuz, over which India has zero control. Macroeconomic indicators are defended as being historically strong: the Current Account Deficit (CAD) has been managed at under 1.5 per cent (compared to crisis levels of 5 per cent in 2012-13), and inflation is controlled,” he said.
The second source added that while fuel prices have risen 30-50 per cent in South-East Asia, 30 per cent in North America, and 20 per cent in Europe due to the crisis, it is much less in India. “While 82 countries have been forced to implement mandatory emergency measures like fuel rationing, school closures, and mandatory work-from-home, India is taking a softer approach by leading through ‘voluntary conservation’,” he added.
Appeal for deferring gold purchase
According to sources. the PM’s specific requests — cutting foreign travel, pausing gold purchases, and reducing fertilizer use — are highly calculated moves to save dollars with minimal economic damage. Indian households own an estimated 30,000 tonnes of gold (valued at $5 trillion, more than India’s nominal GDP). Gold was India’s second-largest import, costing $72 billion for 2025-26
“Gold is a non-productive asset that drains foreign exchange. Halving gold imports could halve the estimated CAD. Pausing purchases for a year is a ‘sensible suggestion’ since middle-class families can exchange old jewellery instead,’ the first source added.
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Published on May 15, 2026