GTRI Proposes Formula-linked Petrol Pricing Amid Crude Oil Surge

India may soon face another round of petrol and diesel price hikes as global crude oil prices remain close to $100 per barrel, prompting fresh debate over how retail fuel prices should be determined in the country.

A report by Global Trade Research Initiative (GTRI) has proposed a new Fuel Price Transparency Framework (FPTF), which seeks to directly link domestic fuel prices to global crude oil prices, exchange rates, refining costs and taxes through a transparent formula-based mechanism.

India imports nearly 90% of its crude oil requirement, making fuel pricing a critical factor for inflation, fiscal stability and economic growth. According to GTRI, volatile oil prices continue to expose the economy to external shocks, affecting household spending, government finances and the trade deficit.

Transparent Formula Proposed

The proposed framework breaks petrol pricing into four stages. The first step converts global crude oil prices into rupee terms based on the prevailing exchange rate. At Brent crude prices of around $100 per barrel and an exchange rate of ₹93 per dollar, the crude-linked cost works out to nearly ₹58.5 per litre.

The second stage factors in ethanol blending. With India currently blending about 20% ethanol into petrol, and ethanol assumed at ₹60 per litre, the blended fuel cost rises marginally to about ₹58.8 per litre.

The third component includes refining, transport, marketing and dealer commissions. Under the framework, Oil Marketing Companies would be allowed a fixed 15% margin to cover operational and distribution costs, taking the pre-tax petrol price to around ₹67.6 per litre.

Finally, taxes are added. Based on current excise duty and state VAT levels in Delhi, estimated at roughly ₹28.9 per litre, the final retail petrol price would come to around ₹96.5 per litre, broadly in line with existing market rates.

Oil Shock Scenarios

The report also models future oil shock scenarios. If crude oil prices rise to $120 per barrel and the rupee weakens further to ₹95 per dollar, petrol prices could exceed ₹110 per litre if tax rates remain unchanged.

However, GTRI estimates that a 10–15% reduction in fuel taxes during such periods could moderate retail prices to around ₹102–106 per litre, cushioning consumers from the full impact of global crude spikes.

According to GTRI, the framework is not intended to artificially suppress fuel prices but to make pricing more transparent and predictable. Under the proposal, each component of the retail price — including crude cost, exchange rate, ethanol blending, OMC margins and taxes — would be publicly visible.

The think tank argues that such transparency would help balance consumer interests, government revenue needs and the operational stability of Oil Marketing Companies.

With global energy markets witnessing sharp swings and Brent crude has fluctuated between $58.72 and $126.4 per barrel over the past year — the report said a transparent pricing mechanism has become increasingly important for maintaining macroeconomic stability and public confidence in fuel pricing decisions.