Indian airlines woke on October 1st to costlier jet fuel. Indian refiners woke to a lower tax on selling the same fuel abroad.
The two changes look contradictory only at first glance. They come from different price mechanisms and serve different policy purposes. Domestic airlines buy aviation turbine fuel, or ATF, at prices set monthly by state oil companies and influenced by international benchmarks, exchange rates, logistics costs and state VAT. Refiners exporting ATF pay a separate central levy, adjusted every fortnight.
State oil companies raised domestic ATF by about Rs 16 a litre on October 1st, from around Rs 121 to roughly Rs 137 a litre, according to reported revisions. At the same time, the Finance Ministry cut the special additional excise duty on ATF exports from Rs 15 to Rs 10.5 a litre, the second reduction since mid-September. The export-tax cut applies to fuel leaving India. It does not lower the price paid by an airline filling an aircraft at Delhi, Mumbai, Chennai or Kolkata.
The lower levy improves the economics of exporting fuel when overseas margins are attractive. For airlines, the higher domestic rate raises a cost that can account for roughly a third or more of operating expenditure, depending on the carrier, route, currency and fuel market. It is a policy split between supporting refinery export competitiveness and leaving domestic carriers exposed to the cost of buying fuel at home.
The four-metro price comparison needs care. Indian Oil’s publicly indexed ATF page was displaying April figures rather than the October revision at the time of publication, so it cannot yet verify the new city-by-city rates. The oil companies and the Petroleum Planning and Analysis Cell should publish a timely, accessible price sheet showing Delhi, Mumbai, Kolkata and Chennai rates, including the base price and state tax component.
The broad direction is clear. Delhi and Mumbai should not be assumed to pay the same fuel price because state VAT differs. Maharashtra has previously reduced VAT on ATF to 1%, while some other states have imposed higher rates. Fuel is outside GST, meaning airlines deal with different state levies and cannot obtain the kind of uniform input-tax treatment available in many other sectors.
The price rise lands before Diwali, when domestic demand normally strengthens and aircraft fly fuller. Whether fares rise will depend on how long the fuel price remains elevated, how aggressively airlines compete for market share and how much capacity is available on a route. Airlines do not automatically pass through every rupee. They first test what the market will bear.
But the arithmetic is harsh. Consider a simplified Delhi to Mumbai sector flown by an Airbus A320neo. A typical one-way flight might burn roughly 2,300 to 2,700 litres of fuel, depending on payload, weather, routing, taxi time and operational procedures. That range is illustrative, not an airline-specific fuel plan.
At September’s reported Rs 121 per litre, 2,500 litres would cost about Rs.302,500. At October’s reported Rs137 per litre, the same uplift would cost about Rs.342,500. The monthly revision adds about Rs.40000 to the fuel bill for one representative sector.
That does not mean each passenger’s ticket rises by exactly Rs 200. A full A320neo, an empty one, a delayed one and a flight carrying significant cargo all spread costs differently. Airlines hedge some exposure, negotiate supply arrangements and may buy fuel at multiple airports. But the direction is plain. A Rs 16 increase per litre is a meaningful headwind on a high-frequency domestic network.
The contrast with export policy is politically awkward. A refiner may now face a lower tax when selling ATF overseas, while an Indian airline faces a higher invoice at home. Yet the government is not formally subsidising exports at the airline’s expense. The two policies respond to different calculations. Export levies are designed to capture part of refinery windfall gains when global prices are high. Domestic ATF prices are linked to international product prices and local taxes.
The practical question is whether India wants to treat aviation as an input to national connectivity and trade, or simply as another consumer of petroleum products.
India is home to some of the world’s fastest-growing airlines. It also has large refining capacity and exports refined products. The danger is that a country builds a formidable fuel-export business while making its own carriers pay a premium to connect its cities.
October’s revision is a reminder that airlines do not fly on traffic growth alone. They fly on fuel.