Finance Minister Nirmala Sitharaman announced a sweeping overhaul of India’s fuel duty structure on Friday, March 27, as the government moved decisively to protect domestic availability of aviation turbine fuel and diesel in the face of supply disruption and price volatility triggered by the West Asia conflict and Strait of Hormuz closure.
With immediate effect, an export duty of ₹29.50 per litre has been imposed on aviation turbine fuel (ATF) and ₹21.50 per litre on diesel — charges designed to make it economically unattractive for Indian refiners to export these fuels when domestic supply is under pressure. At the same time, the government has reduced central excise duty on both petrol and diesel by ₹10 per litre for domestic consumption, cushioning the impact of elevated global crude prices on Indian consumers and transport operators.
Windfall Tax Reintroduced, to Be Reviewed Fortnightly
Alongside the duty changes, the government has reintroduced the Special Additional Excise Duty (SAED) — popularly known as the windfall tax — on diesel and ATF. CBIC Chairman Vivek Chaturvedi confirmed that the SAED will be reviewed every fortnight to calibrate it in line with changing global crude prices and domestic supply conditions. The tax is expected to generate approximately ₹1,500 crore in revenue during the first review period. The windfall tax was originally introduced in July 2022 following Russia’s invasion of Ukraine to curb extraordinary gains by refiners during periods of soaring global crude prices, and its reintroduction signals the severity with which the government views the current supply risk.
Rationale: Protecting Aviation and Road Transport Fuel Supply
The export duty on ATF is particularly significant for the aviation and air cargo sectors. India’s refiners have been exporting ATF in larger volumes as international jet fuel prices have surged above domestic levels, creating a risk of domestic aviation fuel shortages. The ₹29.50/litre export duty directly addresses this arbitrage by making domestic sales more attractive for refiners, helping ensure that India’s airlines and air cargo operators — already under stress from Gulf route disruptions — have reliable access to jet fuel at manageable prices.
The diesel export duty similarly addresses the risk that India’s refinery output flows to international markets rather than domestic consumers at a time when road transport, agriculture, railways, and power generation all depend on reliable diesel supply. With e-commerce logistics, trucking, and last-mile delivery already under strain from the Hormuz crisis, a domestic diesel shortage would compound an already difficult supply chain situation.
Broader Impact on Shipping and Logistics
For the maritime sector, the duty changes have direct implications for bunkering economics. Indian refiners supplying bunker fuel to vessels at Indian ports will face different cost dynamics under the new duty structure. The fortnightly SAED review mechanism introduces an element of policy predictability that the shipping industry will need to incorporate into voyage cost planning. The ₹10/litre domestic excise cut is expected to provide modest relief for road transport operators whose costs have been climbing sharply on the back of both higher crude prices and the surge in demand for truck freight as a substitute for disrupted sea and air cargo services.
