India is considering creating a financial buffer for petroleum products such as petrol, diesel and LPG (liquefied petroleum gas) to manage supply disruptions and global price volatility, according to two people aware of the development.
The buffer would be similar in concept to the price stabilization fund (PSF) that exists to help manage inflation in select critical agricultural commodities, which was set up in fiscal year 2015 (FY15).
The plan for a dedicated price stabilization fund for energy—being explored by the Union ministries of consumer affairs, food and public distribution, and petroleum and natural gas—was mooted during a recent meeting of the empowered group of secretaries, the people cited above said on condition of anonymity, and follows the uncertainty over energy supply and price rise due to the West Asia war.
“Drawing from the success of the PSF in containing inflation and cooling soaring prices of essential commodities such as pulses, onions, potatoes and tomatoes, the government is now looking to replicate a similar framework for key energy commodities like petrol, diesel and LPG,” said the first person, while adding that talks are in initial stages.
The second person said discussions in the government are centred around how such a fund would be financed, the triggers for intervention, and the mechanism for deployment without distorting market signals.
“The petroleum ministry is examining whether a dedicated buffer could provide a more predictable and transparent tool for price management,” the second person added.
The fund would operate like the PSF for agri commodities, which allows the government to procure goods from farmers, farmer producer organisations and, sometimes, directly from mandis at the time of harvest under contract, and release them in both retail and wholesale markets during periods of crisis. For the ongoing fiscal, the government has allocated ₹4,100 crore under the PSF to the ministry of consumer affairs.
For the energy framework, the government would enter into contracts with oil refiners (OMCs, oil marketing companies) to create a buffer reserve of a certain quantity of fuels including petrol, diesel and liquified petroleum gas (LPG), which can be released during periods of crisis to help cool prices.
To be sure, these reserves would be in addition to the 5.3 million metric tonnes of strategic petroleum reserves (SPRs) to store crude oil, which is owned and managed by government-owned Indian Strategic Petroleum Reserves Ltd.
Notably, price stabilization funds are not a subsidy mechanism. They are only used during periods of abnormal price rise as an intervention mechanism to increase supply in the market and help bring down prices.
Queries emailed to the spokespeople of the ministries of consumer affairs, petroleum and natural gas and prime minister's office remained unanswered till press time.
Arun Kumar, former professor of economics at the Jawaharlal Nehru University, said the plan to create such a dedicated fund for petroleum products is workable.
“As seen in essential commodities, when prices rise, the government steps in at the retail level and makes supplies available at subsidised rates, often with limits such as a fixed quantity per person,” Kumar said.
Rakesh Arrawatia, professor at the Institute of Rural Management Anand (Irma), Gujarat, and dean of School of Cooperative Banking and Finance, suggested that the government could add another component to the fund to support alternative sources of energy, so that dependence on fossil fuels can be reduced.
Uncertain times
The government’s move comes in the backdrop of crude prices shooting up to about $100 per barrel since the war began compared to $70 prior, and the uncertainty over supply through the Strait of Hormuz.
So far, rising prices have led to private fuel retailers Nayara Energy and Shell, which operate around 7,500 retail pumps, raising retail fuel prices.
State-run OMCs have raised prices of premium fuels and industrial diesel, procured by industries and the agriculture sector, but have not touched prices of regular petrol and diesel.
The government has already lowered excise duty on petrol and diesel by ₹10 per litre to discourage OMCs (oil marketing companies) from raising prices of regular fuels. However, the losses or under-recoveries for the state-run OMCs stand at around ₹25 per litre of petrol and ₹105 a litre for diesel.
In the case of LPG (liquefied petroleum gas), commercial supplies have seen a major increase in prices along with curtailed availability, while a surge in domestic cooking gas prices has so far been avoided with a one-time hike of ₹60 in early March.
The plan for setting up a price stabilization fund would also involve setting up storage capacities for the products concerned. Currently, refiners do have storage for their operations, however, this fund would require a significant capacity addition.
Mint earlier reported that the government is considering a mandatory LPG storage timeline for OMCs, which would help in meeting the demand in case of supply uncertainty.
Being the fourth largest refiner in the world, India’s petroleum product demand has also been reaching fresh record levels for the past few years. In FY26, the petroleum product demand was 243.2 million tonnes per annum, 1.6% higher than the previous fiscal.
Assuring the citizens of sufficient stocks, a statement by the petroleum ministry on Tuesday said: “All refineries are operating at high capacity with adequate crude inventories, while sufficient stocks of petrol and diesel are being maintained.”