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The Fiscal Cost of Holding Down Fuel Prices in India After the Middle East War

Author

Listed:
  • Sanjeev Gupta

    (Indian Council for Research on International Economic Relations (ICRIER))

  • Pratik Tiwary

Abstract

The paper shows that India's policy of shielding consumers from higher fuel prices through tax reductions, subsidies, and constrained price pass-through has provided short-term relief but entails significant fiscal costs, estimated at about 0.6 per cent of GDP annually.1 These measures also weaken price signals, encourage inefficient energy use, and disproportionately benefit higher-income households. At the same time, declining petroleum tax revenues and limited adjustment for inflation have eroded the tax base and reduced the alignment of fuel prices with their social and environmental costs.

Suggested Citation

  • Sanjeev Gupta & Pratik Tiwary, 2026. "The Fiscal Cost of Holding Down Fuel Prices in India After the Middle East War," Indian Council for Research on International Economic Relations (ICRIER) Policy Paper 68, Indian Council for Research on International Economic Relations (ICRIER), New Delhi, India.
    • Handle: RePEc:bdc:ppaper:68
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