As assembly elections across four states conclude, attention is shifting back to a critical economic concern: fuel prices. Speculation is mounting that petrol and diesel rates, which have remained steady despite prolonged geopolitical tensions in the Middle East, could soon see an upward revision. While the government has consistently dismissed such claims, the sustainability of this price control is increasingly being questioned.
Crude oil prices, which hovered around $70 before the Iran conflict, have surged past $100 and even touched $126 at one point. This sharp rise has placed a significant burden on state-run oil marketing companies, which have absorbed the cost to maintain stable retail prices, leading to mounting financial losses.
A recent PTI report, citing government sources, indicated that a price hike in petrol and diesel cannot be ruled out. Meanwhile, state-owned fuel retailers have already increased prices of commercial LPG, industrial diesel, 5-kg LPG cylinders, and jet fuel for international airlines, aligning them with rising input costs.
Interestingly, while crude prices remain elevated, domestic LPG rates have not been revised. However, commercial LPG (19 kg) saw a steep hike of Rs 993 recently, signalling that price adjustments are already underway in select segments.
IMF Pushes For Market-Driven Pricing
Amid these developments, the International Monetary Fund (IMF) has urged India to allow fuel prices to reflect global market realities. It argues that artificially suppressing prices may not be viable for long.
“They (govt) have cut excise taxes on oil. They provide some fertiliser subsidies. This can continue for some time, not much more in terms of fiscal space. At some point in time, you have to allow price signals to start to flow. And that’s something which is true for India,” IMF’s director for Asia Pacific Krishna Srinivasan said at an event organised by NCAER as reported by TOI.
He emphasised that higher prices could help moderate demand during supply constraints and recommended targeted subsidies for vulnerable groups.
The government, however, appears to disagree with the IMF’s assessment. RBI deputy governor Poonam Gupta highlighted India’s relatively strong fiscal position, noting a projected decline in gross debt from 83.4% of GDP in 2026 to 77.7% in 2031.
She pointed to prudent fiscal management, effective consolidation, and strong economic growth as factors that strengthen India’s resilience. Gupta also noted that the IMF had previously underestimated India’s growth trajectory.
Why The IMF Wants Prices To Rise
The IMF’s stance is rooted in economic fundamentals. It believes that allowing fuel prices to rise is essential for balancing global supply and demand. Rodrigo Valdes explained this perspective clearly: “We don’t have oil. We don’t have energy. Energy needs to be more expensive for everybody, so that the adjustment happens and we consume less.”
He further cautioned, “It’s a global shock, and if countries suppress the price signal, the global price will be higher.”
The concern is that if major economies shield consumers through subsidies or price caps, global demand remains artificially high, exacerbating supply shortages and keeping prices elevated.
Contrary to popular belief, the IMF is not advocating unchecked price hikes. Instead, it distinguishes between broad subsidies and targeted support. While the former distorts consumption patterns, the latter allows governments to cushion the impact without interfering with market signals.
By recommending temporary cash transfers, the IMF suggests a balanced approach, preserving price signals while supporting households through the transition.
With global oil prices remaining volatile and fiscal pressures mounting, India faces a complex policy challenge. Continuing price suppression may offer short-term relief but could strain public finances and distort market dynamics.
