Daijiworld Media Network - New Delhi
New Delhi, May 16: The recent increase of Rs 3 per litre in retail fuel prices is expected to significantly reduce the financial burden on oil marketing companies (OMCs), providing relief of nearly Rs 52,700 crore against their mounting under recoveries, according to a report released by SBI Research on Saturday.
The report estimated that the relief would offset nearly 15 per cent of the total projected losses faced by OMCs during FY27.
Under recoveries on petrol and diesel have risen sharply after retail fuel prices remained unchanged despite an increase in global crude oil prices. The government estimates that state-run oil companies have been losing nearly Rs 1,000 crore daily, translating to an annual burden of around Rs 3.6 lakh crore.
According to the report, the latest fuel price revision is unlikely to significantly impact overall fuel demand in the long run. Historical consumption trends showed that while fuel usage tends to dip immediately after price hikes, demand generally recovers over the course of the year.
SBI Research also said the increase could have a short-term impact on inflation. It estimated that the immediate effect on Consumer Price Index (CPI) inflation during May and June 2026 may be around 15 to 20 basis points.
“Further, immediate impact on CPI inflation is likely around 15-20 bps in May-June 2026. So, we revise our FY27 forecast to 4.7 per cent. There is no direct impact of this hike on the fiscal situation,” the report stated.
The report also recalled that the government had earlier reduced excise duty on petrol and diesel by Rs 10 per litre to support consumers and oil companies. That move reportedly resulted in a revenue loss of nearly Rs 1.1 lakh crore for the Centre.
It added that any future move to completely rationalise excise duty to zero in order to further assist OMCs could cost the central government approximately Rs 1.9 lakh crore, while states could collectively lose around Rs 80,000 crore in revenue.
At the same time, the report warned that continued depreciation of the Indian rupee could undermine the gains expected from the fuel price hike.
It explained that if the rupee weakens by an additional Rs 2 beyond the FY27 average estimate of Rs 94 against the US dollar, the financial benefits generated by the domestic fuel price revision could be fully wiped out.
“The rupee has already approached a critical depreciation threshold, beyond which further currency weakness could substantially erode the intended benefits of domestic fuel price revisions,” the report noted.