The Union Cabinet, headed by Prime Minister Narendra Modi, on Wednesday approved a one-time budget support of Rs 10,000 crore to oil marketing companies (OMCs) to provide aviation turbine fuel (ATF) price stabilization support to Indian airlines for their domestic and international operations.
“Budget support will be in the form of interest-free advance payments to oil management companies through grant applications from the Ministry of Petroleum and Natural Gas. Support will be provided to oil management companies to facilitate stable ATF pricing for airlines during the ongoing period of extraordinary fuel price fluctuations arising from the West Asia crisis,” the government said.
This comes at a time when the aviation sector is affected by unprecedented fluctuations in global ATF prices in the wake of the West Asia crisis. Due to the ongoing West Asia crisis, international ATF prices have risen approximately 2.5 times from $Rs 60.50 per liter in March 2026 to Rs 142 per liter in May 2026. ATF accounts for nearly 40% of the airline’s operating cost. Therefore, this volatility in ATF prices has resulted in higher cost pressure on airlines’ financials.
While a cap has been placed on the price of ATF for domestic operations, Indian carriers continue to procure ATF for international operations at import parity rates (IPP).
The government said that a one-time budget support of up to Rs 10,000 crore will be provided as interest-free advance to OMCs to support stabilization of ATF rates for Indian airlines. The Group will compensate international oil companies for losses resulting from rises in international ATF prices when the prevailing independent energy producer exceeds the benchmark price set under the approved mechanism.
What happens when global ATF prices moderate?
The government also said that when international ATF rates moderate, the differential amount will be recovered from the OMCs and returned to the Consolidated Fund of India and that the arrangement will continue until the entire subsidy amount is recovered and settled.
“The mechanism provides greater predictability in fuel costs by adopting a fixed price arrangement for domestic and international operations, thereby reducing the exposure of airlines to sudden rises in fuel prices,” a government statement said.
It also said that the arrangement will be implemented through a memorandum of understanding between the participating airlines and OMCs, with the Ministry of Civil Aviation and MMoPNG as signatories.
“Under this one-time arrangement, participating airlines will procure only ATF from OMCs for a period of up to three years, subject to annual review or until the advance amount is fully recovered, whichever is earlier,” the government explained.
A monitoring committee composed of representatives from the Ministry of Civil Aviation and the Ministry of National Planning and Expenditure Management will supervise the implementation, verification of claims, reconciliation and settlement. The government said all claims and refunds will be subject to review.
“The ATF price stabilization support will be effective for a period of thirty-six months with provision for annual review or until the full amount advanced is recovered/settled, whichever is earlier. The proposal may be extended beyond thirty-six months with the approval of the competent authority if the text is not fully rectified within this period,” the government said.
The proposed mechanism will provide enhanced stability and predictability in ATF pricing to Indian airlines, enabling better operational and financial planning, the government said. It also said that the mechanism will also protect OMCs from losses caused by volatile and rising ATF prices during the ongoing West Asia crisis.
“This measure will help protect and sustain domestic and international air connectivity, ensuring continuity of air services. It will reduce the transmission of fuel price shocks to passengers, helping to mitigate price fluctuations. This arrangement will support continued air connectivity to remote, regional, and Tier II and III cities, promoting balanced regional development and inclusive growth,” the government said.
Through this mechanism, the benefits will include stable flight operations and help sustain employment across airlines, airports, ground handling agencies, MRO companies, travel agencies, hospitality and logistics sectors.
The government said the mechanism will also benefit the continuity of air connectivity and facilitate the movement of passengers, high-value cargo, business and tourist travellers, thus supporting economic activity across sectors.
“This measure will have positive impacts on tourism, hospitality, trade, exports, regional development and investment. It will help ensure optimal utilization of airport infrastructure developed across the country, including airports operated under the UDAN scheme. By maintaining domestic and international connectivity, the initiative will strengthen India’s integration with global markets and support long-term economic growth,” the government also said.
