Authors: Ankit Raj , Japho Esther Rani

ABSTRACT

India is heavily dependent on energy imports, leaving its macroeconomic stability sensitive to global fuel supply shocks and price volatility. The analysis of this paper explains the impact of international oil price fluctuations in low-income households through direct price pass-through, fiscal policy interventions, and indirect inflationary trends. Incorporating unit-level data from the Household Consumption Expenditure Survey (HCES) 2022–23 and the Periodic Labour Force Survey (PLFS) 2022–23, this study analyzes household consumption adjustments and the distributional incidence of fuel subsidies across rural and urban income cohorts between 2019 and 2023. Bivariate and descriptive analysis reveal an extreme spending polarization: while fuel budget shares remain rigid across all income levels, the poorest rural households devote nearly 60% of their monthly budgets to food security, leaving them zero financial buffer during oil shocks. Furthermore, the findings expose a distinct pro-rich bias in the absolute delivery of fuel interventions, where wealthy urban households capture up to ₹2,540.8 in annual subsidy benefits compared to just ₹635.2 captured by the rural poor. that universal fuel subsidies are failing to protect vulnerable populations and recommend transitioning toward targeted Direct Benefit Transfers (DBT) and progressive subsidy reduction mechanisms.