Inflation in India is not merely the result of global shocks; it is increasingly a product of high fuel taxes, cesses and pricing policies that amplify costs across the economy. The country’s heavy dependence on petroleum and gas—further entrenched by schemes such as Ujjwala—has made energy prices the trigger for widespread inflation.
A simple Petroleum Minis try advisory in March warning of tighter commercial LPG supplies was enough to push up the cost of everything from the humble pakora to ice cream, paints and construction materials. Pakora sellers say rising gas prices are compounded by costlier edible oils, commodities and transport, creating a cascading inflationary effect that touches almost every household and business.
India’s headline retail inflation rose to 3.48% (provisional) in April 2026, driven largely by food and beverage costs. Analysts, including those at ICRA, a Moody’s associate, expect headline figures to harden slightly to around 4.1% for May due to rising input and transport costs. It is rising now beyond RBI’s tolerance limits. If people were taxed less on petrol, they would have eventually spent it on other goods, promoting economic growth and the government getting paid taxes anyway. That’s the common cry. The fuel policy needs immediate review. But biofuel ethanol that has high moisture (water) is certainly not the solution.
In such a scenario, should not the country have reduced petrol prices? It collected Rs 39 lakh crore through high cess, additional excise duties “for funding redemption of ap proximately of Rs 3.3 lakh crore petro-bonds of regimes since 2002.” There is supposed to be a reserve of Rs 36 lakh crore as the benefit of crude falling below $40 a barrel (155 litre) was never passed on to the OMCs.
From FY16 to FY22, Indian OMCs largely benefited from deregulated fuel pricing, healthy refining margins, and relatively stable crude prices, with profits peaking despite pandemic disruptions. In FY23 they suffered some losses. Profitability rebounded dramatically in FY24 with combined earnings of Rs 86,000 crore, moderated to Rs 33,602 crore in FY25 due to LPG subsidies, and recovered to Rs 77,821 crore in FY26, driven by normal refining margins and gains from lower-cost crude inventories.
Despite collecting nearly Rs 36 lakh crore through fuel taxes and cesses, India has largely relied on market-linked fuel pricing rather than using these revenues to help OMCs stabilise prices. As a result, fuel prices remain higher and more volatile than in neighbouring countries such as Bangladesh and Bhutan, where governments more actively regulate or subsidise fuel to contain inflation.
Petroleum prices alone are not hiking market prices. Many sectors like education and healthcare are victims of severe price manipulations often called “greedflation.” This refers to the practice of companies using economic disruptions—such as supply-chain bottlenecks, inflation, or commodity price spikes—not merely to cover rising costs but to expand profit margins by raising prices beyond what costs justify.
In India, the concept gained prominence during the post-pandemic recovery as concerns grew that some firms were using inflationary conditions to boost profits while consumers faced rising living costs. Data from post-pandemic periods highlighted that the net profits of thousands of listed Indian companies reached historic highs, often multiplying several times over pre-pandemic averages. More than half of the increases in corporate profits are reportedly driven by fatter profit margins rather than expanded sales volume. Unlike traditional cost-push inflation, where rising labour costs drive up prices, the surge in corporate profits was largely decoupled from wage growth. The wages stagnated or even compressed.
NITI Aayog advocates for a technology-agnostic, “multiple fuel policy” to achieve energy security and net-zero emissions, rejecting a strict EV-only approach. And certainly, the ethanol-based biofuel with high water content is not the solution.
The government must stop its use for more than one reason, including damage caused to the vehicles. India’s energy and inflation control measures are flawed for many reasons. The overall energy policy, its pricing mechanisms and tax structure require a comprehensive review and reformulation. Short-term interventions may temporarily contain inflation, but they often distort markets, shift costs between consumers, producers and the government, and create uncertainty for investment and long-term planning.
Without structural reforms, India risks recurring cycles of price shocks, subsidy burdens and uneven profitability across the energy sector, undermining both economic stability and sustainable growth.