Relevance: GS III (Indian Economy – Energy Pricing & Inflation) | Source: The Hindu
1. The Context: A Price Disconnect
Despite a massive 41.5% drop in the price of the Indian Basket of Crude Oil (from ~$116/barrel in June 2022 to ~$67.9/barrel in Jan 2026), domestic petrol prices in India have been reduced by a mere 1.9%.
- The Trend: While global raw material costs have crashed, the benefit has not been passed on to the Indian consumer.
- The Reason: Oil Marketing Companies (OMCs) like IndianOil, BPCL, and HPCL have effectively “frozen” prices. Initially, this was to protect consumers when global rates were high. Now, they are keeping prices high to recoup past losses (under-recoveries) and generate profits.
2. “Dynamic” vs. “Convenience” Pricing
- Official Policy: India adopted “Dynamic Fuel Pricing” in 2017, where fuel prices are supposed to change daily based on global crude rates and currency fluctuations.
- Current Reality: The article terms the current practice as “Pricing by Convenience.”
- When Global Prices Rise: OMCs freeze prices to avoid political backlash or inflation spikes.
- When Global Prices Fall: OMCs retain the profit margins instead of lowering rates for consumers.
3. Economic Implications
- Sticky Inflation: Fuel is a universal input. High diesel prices keep transport costs high, leading to a “Cascading Effect” on the prices of vegetables and essential goods (CPI Inflation), even when global commodity prices fall.
- Fiscal Math: The government and OMCs benefit from this arrangement through steady tax collections (Excise + VAT) and corporate profits, effectively transferring wealth from the consumer to the state and PSUs.
UPSC Value Box
| Concept / Term | Relevance for Prelims |
| Indian Basket of Crude Oil | The weighted average of Oman & Dubai (Sour Crude – High Sulphur) and Brent (Sweet Crude – Low Sulphur) used by Indian refineries. India imports over 85% of its crude requirement. |
| Under-Recovery | The notional loss incurred by Oil Marketing Companies (OMCs) when they sell fuel below the actual cost of production (often due to government pressure to keep prices low). |
| Windfall Tax | A tax levied by the government on the “super-normal profits” of energy companies. It is usually triggered when global prices are very high, but currently, OMCs are making these gains by not passing on price cuts. |
The term “Indian Basket,” frequently seen in news regarding energy security, refers to:
- The strategic petroleum reserves maintained by India at Visakhapatnam, Mangaluru, and Padur.
- The weighted average of ‘Sour’ and ‘Sweet’ crude oil varieties imported by Indian refineries.
- A sovereign wealth fund established to finance renewable energy projects in India.
- The basket of goods and services used to calculate the Wholesale Price Index (WPI) for the energy sector.
Correct Answer: (2)
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