While headlines in the big media and statements from Union ministers harp on the financial distress of state-run oil companies due to high crude prices, the actual crisis stems from a deliberate political choice by the Narendra Modi government to freeze the daily dynamic pricing mechanism. Oil marketing companies are booking massive under-recoveries, translating to a daily loss of nearly Rs 10 billion as global oil benchmarks remain high.

However, this fiscal loss is an artificial crisis inflicted upon the public sector, since the pump prices were never brought down when crude prices were low. The government raised excise duties, earned higher dividends and collected more taxes by suspending market-linked dynamic pricing.

Done in November 2021 for short-term political gains during election cycles, the Modi government eventually stalled the United Progressive Alliance-era (UPA-era) policy direction, burdening the Indian consumer with structurally higher living costs forcing state oil companies into a massive Rs 1.98 lakh crore deficit that taxpayers must ultimately fund.

What is the dynamic fuel pricing model?

The dynamic pricing model for retail fuel is built on the principle of market deregulation, where retail pump prices fluctuate daily to reflect real-time changes in international crude oil benchmarks, local taxes and currency exchange rates. This model replaces fixed or periodic administrative pricing, decided by the government or the oil companies, with automatic, market-linked adjustments.

Did India have the dynamic fuel pricing model?

Yes, the transition started when India moved to a fortnightly pricing system under the UPA government by the deregulation of petrol in 2010 and diesel in 2014. It was a deliberate move designed to transition India away from complete government control over energy prices for the consumer.

Prior to deregulation, the Union government fixed fuel prices for months or years at a time under the Administered Pricing Mechanism. In linking domestic fuel prices to international markets, there was a risk of international oil market volatility hurting Indian consumers. The 14-day averaging smoothed out daily spikes and drops, ensuring that the prices transferred to retail pumps were........

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