India’s petroleum sector delivered a mixed but strategically important performance during the year under review, reflecting the complex interplay between global volatility, domestic demand growth, and policy efforts to strengthen energy security. The Economic Survey 2025–26 positions petroleum as both a macroeconomic stabiliser and a structural vulnerability for India, given the country’s high import dependence even as consumption continues to rise with economic expansion.
The Survey notes that domestic demand for petroleum products remained robust, supported by steady GDP growth, higher mobility, infrastructure construction, and expanding industrial activity. Consumption of key products such as petrol, diesel, aviation turbine fuel (ATF) and LPG recorded year-on-year growth during the year, reversing the moderation seen during periods of global slowdown. Transport fuels, particularly petrol, benefited from rising vehicle ownership and sustained road freight movement, while diesel demand reflected strong activity in construction, mining, and logistics.
Diesel continued to dominate India’s petroleum consumption basket, accounting for the largest share of total product demand. The Survey highlights that diesel demand growth was closely linked to government-led capital expenditure on roads, railways, housing and urban infrastructure. At the same time, petrol consumption outpaced diesel in percentage terms, driven by urbanisation and higher penetration of personal mobility. ATF demand recorded one of the fastest growth rates, supported by a strong recovery in domestic and international air travel.
On the supply side, the Survey underscores that India remains heavily dependent on crude oil imports, with import dependence exceeding 85 per cent of total crude requirements. While domestic crude oil production remained broadly stagnant or declined marginally due to the natural depletion of mature fields, refinery throughput increased to meet rising product demand. Public sector refiners, along with large private refiners, operated at high utilisation rates, reinforcing India’s position as one of the world’s major refining hubs.
Refining capacity expansion and operational efficiency were notable positives during the year. The Survey points out that India’s total refining capacity has crossed 250 million tonnes per annum, enabling the country not only to meet domestic demand but also to export refined petroleum products. Exports of petroleum products provided an important source of foreign exchange earnings, partially offsetting the cost of crude oil imports and supporting the trade balance.
Global crude oil prices remained volatile during the year, influenced by geopolitical tensions, production decisions by major oil-producing countries, and uncertainty in global growth prospects. The Survey notes that while average crude prices moderated compared to previous peaks, they remained elevated and unpredictable. This volatility had direct implications for India’s import bill and inflation management, given the central role of petroleum products in transportation and logistics costs.
The government’s pricing and taxation policies played a critical role in cushioning the domestic economy from external shocks. The Survey highlights that calibrated excise duties and targeted price interventions helped limit the pass-through of global price fluctuations to retail fuel prices. This approach balanced fiscal considerations with the need to protect consumers and contain inflation, especially in a year marked by pressures from food and energy prices.
The petroleum sector’s contribution to government revenues remained substantial. Excise duties, value-added taxes and dividends from public sector oil companies continued to be an important source of fiscal resources for both the Centre and the states. However, the Survey also flags the inherent trade-off between revenue mobilisation and price stability, particularly during periods of sharp global price movements.
From an energy security perspective, the Survey places strong emphasis on diversification of crude oil sourcing. India continued to import crude from a wide range of suppliers, including West Asia, Russia, Africa and the Americas, reducing over-reliance on any single region. Strategic petroleum reserves were also highlighted as a key buffer against supply disruptions, with plans to expand storage capacity to cover a larger share of import requirements.
The downstream segment showed resilience, but not without challenges. Marketing margins for oil marketing companies (OMCs) were under pressure during periods of high crude prices and controlled retail prices. The Survey notes that while financial performance improved compared to earlier stress periods, the sector remains exposed to policy and price risks. Over the medium term, improving pricing flexibility and operational efficiency will be crucial for the financial sustainability of OMCs.
The Survey also situates petroleum within the broader context of India’s energy transition. While renewable energy capacity is expanding rapidly, petroleum products continue to play a dominant role in transport, aviation, petrochemicals, and industry. The Survey acknowledges that alternatives such as electric mobility, biofuels and green hydrogen are gaining traction, but their impact on overall petroleum demand will be gradual rather than immediate.
Biofuels emerge as a key policy lever. The Survey highlights progress under the ethanol blending programme, which has reduced petroleum consumption at the margin and lowered import dependence. Higher ethanol blending not only supports farmers and rural incomes but also contributes to emissions reduction. However, the Survey cautions that feedstock availability and pricing dynamics will determine the pace of further gains.
Petrochemicals represent another growth driver within the petroleum ecosystem. Rising demand for plastics, chemicals, and synthetic materials supported refinery–petrochemical integration projects. The Survey notes that this shift toward higher-value products can improve margins and reduce vulnerability to fuel demand fluctuations, positioning India more competitively in global value chains.
Economic Survey presents a cautiously balanced outlook for the petroleum sector. In the near term, demand is expected to continue growing in line with economic activity, urbanisation, and mobility needs. Import dependence will remain high, making India sensitive to global oil market developments. Over the medium to long term, the pace of demand moderation will depend on the success of electrification, alternative fuels and efficiency improvements.
The performance of India’s petroleum sector during the year reflects both strength and structural constraint. Strong demand, high refinery utilisation, and export capacity underscored the sector’s economic importance. At the same time, persistent import dependence and exposure to global price volatility reinforced long-standing energy security challenges. The Economic Survey 2025–26 makes it clear that while petroleum will remain central to India’s energy and economic landscape for years to come, managing its risks through diversification, efficiency and transition-oriented policies will be critical to sustaining growth and macroeconomic stability.
