As petrol and diesel prices continue to rise sharply across India, pressure is mounting on state governments to reduce Value Added Tax (VAT) on fuel to provide relief to consumers. Industry bodies, transporters, opposition leaders, and fuel dealers are now demanding tax cuts as fuel prices have surged multiple times within just a few days.
Fuel Prices Rise Four Times In Less Than Two Weeks
Fuel prices in India have witnessed four consecutive hikes since mid-May 2026, with petrol and diesel rates increasing by nearly ₹7.5 per litre within 11 days. On May 25 alone, petrol and diesel prices reportedly increased by around ₹2.6 to ₹2.7 per litre.
The price rise is largely linked to higher global crude oil prices amid geopolitical tensions in the Gulf region and concerns over supply disruptions.
Centre Urges States To Cut VAT
According to reports, the central government has urged state governments to reduce VAT on petrol and diesel since fuel taxation varies significantly across states. In several states, VAT on fuel reportedly reaches as high as 30%, making fuel substantially more expensive for consumers.
The variation in state VAT structures is also the reason why fuel prices differ widely between cities and states across India.
Oil Companies Facing Heavy Losses
Despite retail fuel price hikes, public sector oil marketing companies are reportedly still facing major under-recoveries. Reports indicate losses of nearly ₹13 per litre on petrol and around ₹38 per litre on diesel excluding taxes.
The government now faces a difficult balancing act between protecting consumers from inflation and maintaining revenue collections needed for fiscal stability.
Opposition And Industry Groups Increase Pressure
Opposition parties in multiple states have criticized governments for not reducing VAT despite rising fuel costs. In Maharashtra, opposition leaders attacked the state government for delaying a decision on VAT cuts even as consumers continue to face rising prices.
Meanwhile, transporters and petroleum dealer associations across states like Madhya Pradesh and Rajasthan have also urged governments to reduce fuel taxes, warning that high diesel prices are increasing logistics costs and slowing economic activity.
EV Adoption Could Accelerate
Interestingly, rising fuel prices are also expected to boost electric vehicle adoption in India. Dealers and industry experts say inquiries and bookings for EVs, especially electric two-wheelers, have already started increasing in cities like Pune as consumers search for lower running-cost alternatives.
Government Faces Revenue Challenge
Finance Minister Nirmala Sitharaman recently stated that reducing excise duty on fuel could potentially result in a revenue loss of nearly ₹1 lakh crore for the central government.
This means both central and state governments now face growing pressure to balance inflation control, public sentiment, and fiscal health at a time of global energy uncertainty.
Summary
India has seen petrol and diesel prices rise nearly ₹7.5 per litre within 11 days, prompting calls for states to reduce VAT on fuel. The Centre says state taxes significantly increase retail prices, while oil companies continue facing heavy losses. Rising fuel costs are also increasing pressure on consumers, transporters, and businesses, while potentially accelerating electric vehicle adoption across India.
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