Retail Petroleum Prices Fall Only On Paper As Consumers Wait In Anticipation

By K Raveendran

The arithmetic of India’s fuel market has long been sold as market-driven, but the latest price movements expose a more selective discipline. When crude oil rises, the pass-through to consumers and businesses is quick, stern and explained as unavoidable. When the same crude oil retreats, the adjustment becomes cautious, partial and wrapped in administrative silence.

The cut in commercial LPG prices from July 1 is being presented as relief for restaurants, hotels, caterers and small food businesses. A 19-kg commercial cylinder has been reduced by ₹183.50, taking the Delhi price to ₹2,930. The figure looks substantial in isolation, but it comes after a period in which oil and gas prices had hardened sharply on fears of supply disruption in West Asia. The same international conditions that were invoked to justify the rise have now eased materially, yet the scale of the reduction does not fully reflect the reversal in global petroleum prices. That asymmetry is the real story.

The price cycle has once again followed a familiar pattern. Consumers are asked to accept increases as the natural consequence of a volatile global market, but reductions arrive as if they were concessions. This is not a technical quibble. Fuel pricing has a direct bearing on transport costs, food inflation, household budgets, restaurant margins, small vendors, and the cost structure of almost every traded good. A slow or incomplete fall in petroleum prices keeps inflationary pressure embedded even after the original shock has faded.

The latest global context makes the hesitation harder to defend. Crude prices surged during the West Asia crisis as markets priced in the possibility of supply disruption around the Strait of Hormuz. Once the immediate danger receded and tanker movement normalised, oil prices fell back towards pre-war levels. Brent crude, which had climbed during the crisis, dropped sharply as the geopolitical premium unwound. The market did what markets do: it repriced risk. Indian fuel pricing, however, has not shown the same elasticity on the way down.

The contrast with Nayara Energy is revealing. The private refiner and fuel retailer moved to reduce petrol and diesel prices at its pumps, cutting petrol by ₹5 a litre and diesel by ₹3 a litre as global crude softened. Nayara operates a smaller retail network than the public sector oil marketing companies, but the significance of its move lies less in its market share than in the signal it sends. If a private company can restore prices closer to pre-war levels, it becomes difficult to argue that public sector companies are powerless before international volatility.

The public sector oil marketing companies remain the dominant players in India’s fuel retail market, and their pricing behaviour matters far beyond their balance sheets. They shape the benchmark for the entire economy. When they hold petrol and diesel prices steady after crude falls, the benefit of lower import costs is retained within the system rather than transmitted to households and businesses. This may improve margins, repair past losses or create fiscal comfort, but it weakens the claim that retail fuel prices are a clean reflection of market forces.

There is, of course, a legitimate argument that public sector oil companies must avoid abrupt swings and manage inventory costs, refinery economics, currency movements and tax structures. India imports most of its crude oil, and the rupee-dollar exchange rate can dilute the effect of a fall in headline crude prices. Oil companies also argue that they often absorb losses during politically sensitive periods or when global prices rise too quickly. These are not frivolous points. A country of India’s size cannot run fuel pricing as a daily emotional reaction to every market tick.

But that argument cuts both ways. If consumers are made to bear increases swiftly in the name of market discipline, they are entitled to expect similar discipline when prices decline. A smoothing mechanism that only smooths reductions while accelerating increases is not market pricing. It is administered pricing with market language. That distinction matters because public trust erodes when the rules appear to change depending on who benefits.

Commercial LPG illustrates the problem in miniature. The monthly revision system creates an impression of regular price discovery, but the pass-through remains selective. Businesses that rely on LPG rarely have the pricing power to adjust menus, service rates or supply contracts every time fuel inputs rise. Many absorb the increase, some pass it on, and others cut corners. When prices fall only partially, the earlier inflation does not fully reverse. The consumer may not see the relief in restaurant bills, street food prices or small service costs because the upstream reduction is too modest relative to the earlier shock.

Domestic LPG is an even more politically sensitive area, and here the silence is more pronounced. Household cylinder prices are typically managed with greater caution because of their direct link to voter sentiment and welfare commitments. But commercial LPG is not outside the inflation chain. A commercial cylinder used by eateries, small manufacturers, bakeries and service providers affects the final price of goods consumed by ordinary households. Treating the commercial cut as a sectoral adjustment misses its wider economic meaning.

Petrol and diesel are even more important because they are the arteries of the economy. Diesel powers freight, agriculture, public transport and logistics. Petrol affects personal mobility and urban consumption. When diesel prices remain sticky despite a fall in crude, the cost of moving vegetables, grains, milk, construction material and manufactured goods remains elevated. This stickiness has a multiplier effect. It allows an energy shock to linger in the economy long after the original international trigger has weakened.

The government’s own actions show that it recognises the changed global situation. Restrictions on the sale of petrol and diesel imposed during the Middle East disruption have been lifted from July 1. Export duty adjustments have also been made in response to easing global prices and changing supply conditions. These moves show that the state is reading the global oil market actively. The question, then, is why the retail consumer does not receive a fuller benefit when the same market turns favourable.

The deeper issue is political economy, not petroleum chemistry. Fuel pricing involves consideration of several factors such as company margins, government revenue, inflation management and electoral calculation. Excise duties, value-added taxes, dealer commissions and company margins all sit inside the final retail price. When crude falls, governments and companies face a temptation: let consumers benefit, or retain the cushion. Too often, the cushion wins.

This is why the phrase “market forces” rings hollow. If public sector oil companies are commercial entities, they must respond commercially both ways. If they are instruments of public policy, then the government should say so clearly and explain the formula by which consumers are protected or burdened. What cannot be sustained indefinitely is the fiction that consumers are paying a market price when downward market movement is filtered through opaque discretion. For the hospitality and small business sector, the LPG cut will help, but only at the margin. Commercial users have faced a sequence of cost pressures: rent, wages, electricity, transport, food inputs and borrowing costs. A sharper fuel correction would have supported margins without requiring government subsidies. Instead, a partial cut keeps businesses in a holding pattern. They receive enough relief for a headline, but not enough to reset operating costs meaningfully. (IPA Service)