India Needs Market-Linked Formula for Petrol, Diesel Prices

As global crude oil prices remain near $100 per barrel, India may soon face another round of petrol and diesel price increases. The larger challenge for policymakers, however, is not simply whether fuel prices should rise, but how the increase should be determined in a fair, transparent and predictable manner.

A new proposal by GTRI called the Fuel Price Transparency Framework, or FPTF, seeks to address that problem by linking India’s retail fuel prices directly to global crude oil prices, exchange rates, refining costs and taxes through a published formula.

The proposal comes at a time of extreme volatility in global energy markets. As of May 9, 2026, Brent crude futures were trading around $100–$101 per barrel after fluctuating sharply between $58.72 and $126.4 during the past year. In April 2020, prices had briefly fallen below $20 per barrel.

For India, which imports nearly 90% of its crude oil requirement, such volatility creates significant macroeconomic risks. Higher crude prices increase inflation, widen the trade deficit, strain government finances, reduce household spending and slow economic growth.

The proposed FPTF aims to bring greater transparency and predictability to fuel pricing. According to the framework, petrol prices would be calculated through four clearly defined steps.

The first step is converting crude oil prices into rupee terms. If global crude oil prices are $100 per barrel and the exchange rate is ₹93 per dollar, one barrel of crude would cost ₹9,300. Since one barrel contains 159 litres, the crude-linked fuel cost works out to around ₹58.5 per litre.

The second step is ethanol blending. Petrol in India currently contains about 20% ethanol. Assuming ethanol costs ₹60 per litre, the blended fuel cost rises slightly to around ₹58.8 per litre.

The third step adds refining, transport, marketing and dealer margins. Under the proposal, a fixed 15% margin would be allowed for oil marketing companies to cover refining operations, logistics, retail operations and dealer commissions. This raises the pre-tax petrol price to roughly ₹67.6 per litre.

The fourth and final step is taxation. With combined central excise duty and state VAT currently estimated at about ₹28.9 per litre in Delhi, the final retail petrol price works out to around ₹96.5 per litre, close to prevailing market prices.

The framework also allows governments to estimate the impact of future oil shocks. For example, if crude oil prices rise to $120 per barrel and the rupee weakens to ₹95 per dollar, petrol prices could cross ₹110 per litre if taxes remain unchanged. However, a 10–15% reduction in fuel taxes could moderate prices to around ₹102–106 per litre.

GTRI argues that the framework would not necessarily make fuel cheaper, but would make pricing more transparent and credible. Every component of the final pump price — crude cost, exchange rate, ethanol blending, OMC margins and taxes — would become visible to consumers.