New Delhi: With crude oil crossing the $70 a barrel mark in the global market in a renewed rally, the Modi government has reportedly asked oil marketing companies (OMCs) to absorb under-recovery of at least Re 1 a litre on retail sales of petrol and diesel to protect consumers from potential price shocks.Probably as a result of the diktat, the OMCs revised downwards petrol and diesel prices for the first time this month Tuesday.The government could have cut excise duty on auto fuels as an alternative to provide relief to consumers. But, according to media reports, it instead appears to have passed on the burden to OMCs who will have to take a hit on the profits when they absorb under-recovery.Stocks of OMCs also plunged on Wednesday. Hindustan Petroleum Corporation Ltd (HPCL) declined as much as 5.55% to Rs 344.65 while BPCL and IOC were down by over 3% in early morning trading on the Bombay Stock Exchange.As reported by The Wire last September, India’s petrol and diesel prices are among Southeast Asia’s costliest due to high taxes.The NDA government hiked excise duty on auto fuels by nine times in 2014-15 and 2015-16. Excise duty on petrol and diesel was Rs 9.48 and Rs 3.56 a litre respectively before the NDA government took office. However, through repeated hikes, it jacked up duty to Rs 21.48 and Rs 17.33 a litre, increase of 226% and 486% respectively over the May 2014 level.It cut excise duty by once by Rs 2 a litre in October last year. However, that has proved inadequate to cushion the impact of the oil rally in the global market.Petrol and diesel prices ruled at Rs 68.31-73.16 and Rs 48.63-55.48 a litre respectively in 2013-14 when the price of Indian crude basket averaged at the staggeringly high level of $105.52 a barrel.The price of Indian crude basket is currently less than $70 a barrel, but petrol is selling at over Rs 73 a litre at fuel stations.Not only the Centre, states too are taxing petrol and diesel heavily to fill their coffers. The government could bring petrol and diesel within the ambit of Goods and Service Tax (GST) to prevent states from arbitrarily hiking sales tax on auto fuels.In fact, petroleum minister Dharmendra Pradhan has pitched to bring petrol, diesel under GST. However, states continue to drag their feet on this issue. The Centre has failed to persuade states to let go of auto fuels despite the fact it is the BJP that is ruling in a majority of states.With major oil producers complying with agreed output cuts and shale production in the US not coming up fast enough, global investment research firms like Goldman Sachs have increased their wagers on oil price rise.This is not good news for India which meets more than 80% of its crude oil requirement through imports.Struggling to balance its books, the Centre has already prolonged its fiscal consolidation roadmap. A surge in the oil market could give it new headaches.Over the years, India’s efforts to step up production and reduce dependence on imports have failed to make a difference.The Modi government has envisaged bringing down India’s import dependence on oil imports by 10% by 2022. However, crude production continues to stagnate. With the country not making any big discovery in recent years, how that target is going to be met remains a billion dollar question.The rising crude prices could also throw new macroeconomic challenges for the Modi government which has so far benefited from a benign oil market.