India Approves $1.2 Billion Fuel Price Stabilisation Fund for Airlines Amid West Asia Crisis

By Mahima Katal

India's federal cabinet has approved a one-time fuel price stabilisation package of up to 100 billion rupees ($1.2 billion) to shield domestic airlines from soaring aviation fuel costs triggered by the ongoing crisis in West Asia.

The scheme, approved by the Cabinet chaired by Prime Minister Narendra Modi, will provide interest-free financial support to state-run Oil Marketing Companies (OMCs), enabling them to offer more stable Aviation Turbine Fuel (ATF) prices to scheduled Indian airlines operating both domestic and international flights.

Under the arrangement, the government will extend interest-free advances of up to 100 billion rupees to OMCs through the Ministry of Petroleum and Natural Gas. The support is intended to offset losses incurred by fuel retailers when international ATF prices exceed a benchmark price determined under the scheme.

The government said the mechanism would help airlines manage fuel costs during a period of exceptional volatility in global energy markets. ATF accounts for nearly 40% of airline operating expenses and can rise to as much as 60% during periods of extreme fuel-price fluctuations.

International ATF prices have surged from about 60.5 rupees per litre in March 2026 to 142 rupees per litre in May 2026, according to the government, largely due to disruptions linked to the West Asia conflict.

Under the programme, participating airlines will be able to purchase fuel at a fixed price for both domestic and international operations, reducing their exposure to sudden price spikes. In return, airlines opting into the scheme will procure ATF exclusively from state-run OMCs for up to three years, subject to annual review.

The government said any financial support extended to OMCs would be recovered once international fuel prices moderate. Funds recovered from OMCs will be returned to India's Consolidated Fund through a true-up mechanism that will remain in force until the entire amount is settled.

A monitoring committee comprising representatives from the ministries of civil aviation, petroleum and finance will oversee implementation, verify claims and conduct periodic reconciliations. All claims and recoveries will be subject to audit.

The support mechanism will remain in effect for up to 36 months or until the government fully recovers the financial assistance provided to OMCs, whichever comes first.

The aviation sector has faced mounting pressure from rising fuel costs and operational disruptions. The closure of Pakistani airspace to Indian carriers has forced airlines to take longer routes to destinations in Europe, North America and Central Asia, increasing fuel consumption and operating expenses. Airlines have also reported weaker demand on some international routes as ticket prices have risen.

The government said the measure would help preserve domestic and international air connectivity, moderate airfare volatility, protect jobs across the aviation ecosystem and support economic activity in sectors including tourism, hospitality, trade and logistics.