As of mid-2025, India is witnessing yet another sharp rise in fuel prices, with petrol touching ₹124 per litre in metro cities like Mumbai and diesel hovering around ₹109. The upward trend, driven by global crude oil fluctuations, geopolitical tensions, and domestic taxation policies, is putting pressure on household budgets and threatening to fan inflation in the months ahead.
The average retail price for petrol across India has increased by nearly ₹9 since April 2025, while diesel has become costlier by ₹6–₹7. The surge comes despite softening global oil prices in late 2024, suggesting that domestic taxation—particularly excise and VAT levied by states—is playing a more influential role this year.
Why Are Fuel Prices Rising?
The key reasons for the fuel hike include:
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Geopolitical Unrest: Ongoing instability in the Middle East, especially in the Strait of Hormuz region, has disrupted global oil supply chains, affecting Brent crude benchmarks.
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Weak Rupee: The Indian rupee has depreciated to nearly ₹85 against the US dollar, increasing the import cost of crude oil.
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High Taxes: Despite calls for reform, central and state taxes on fuel remain among the highest globally. Over 50% of the retail fuel price is made up of duties and levies.
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Logistics and Seasonal Demand: Post-monsoon transportation demand and festival-season logistics have further stressed supply chains.
Economic Ripple Effects
Rising fuel prices have a cascading effect on inflation. With higher transportation and production costs, food prices have already started climbing. Analysts from CRISIL estimate that every ₹1/litre increase in diesel can raise inflation by 3–4 basis points.
Public transport fares in several cities like Delhi, Hyderabad, and Pune are under review, and freight charges have been revised upward by logistics companies. Small businesses, already reeling from high input costs, are finding it harder to pass on price hikes to consumers without impacting sales.
Government Response
So far, the central government has resisted calls to cut excise duty, citing fiscal consolidation needs. Finance Ministry officials argue that tax collections from fuel are funding infrastructure and welfare schemes. However, some state governments—like Rajasthan and Kerala—have marginally reduced VAT on fuel to ease public burden.
The Centre is also pushing for a nationwide rollout of E20 fuel (20% ethanol-blended petrol) by the end of 2025, aimed at reducing crude dependence. Meanwhile, the push toward EV adoption continues with increased incentives under FAME III policy.
Public Sentiment and Protests
The fuel hike has sparked protests in several cities, led by opposition parties and trade unions. Social media is buzzing with comparisons to pre-2020 price levels, with many demanding relief measures.
Auto-rickshaw unions and transporters are calling for fare revisions, while ride-hailing apps like Ola and Uber have quietly adjusted dynamic pricing algorithms to balance driver earnings.
Outlook
With geopolitical uncertainties persisting and global oil markets remaining volatile, fuel prices are unlikely to see major relief soon. The government’s balancing act—between fiscal needs and consumer relief—will be closely watched ahead of upcoming state elections.