Heat a pan with 2 tbsp oil. Add bay leaf.
Add the onion paste and over low flame cook till almost all the oil gets absorbed by the paste. This should take 3 to 5 mins.
Add tomato puree. Mix well, close the pan withe a lid and let it cook for another 3 to 5 mins.
Add turmeric, red chili and kashmiri red chili powders and mix well.
Cook over low flame till the moisture evaporates completely and the oil starts to ooze out from the sides. This should take 5 to 8 mins.
Add 1-1/2 cups water, milk, salt and sugar. Mix well and let it come to boil over low flame.
Cook for another 5 to 6 mins for the gravy to come together and thicken slightly.
Add air fryed or deep fried baby potatoes.
Cook over low flame for another 2 mins. Switch off flame.
Sprinkle crushed kasuri methi, mix well and close with a lid and rest for another 2 to 3 mins.
Serve this punjabi dum aloo hot with rotis, naans, puris or any pulao varieties.