The recent increase in retail fuel prices by Rs 3 per litre is expected to help reduce the mounting losses faced by oil marketing companies. A report by SBI Research suggests that this hike will provide relief amounting to Rs 52,700 crore in under-recoveries. This relief is approximately 15% of the projected total losses of OMCs in FY27.
Under-recoveries on petrol and diesel have risen due to unchanged retail prices amidst escalating Brent crude prices. The government estimates OMC losses at about Rs 1,000 crore per day and approximately Rs 3.6 lakh crore annually. The report highlights that the fuel price hike is unlikely to impact annual oil consumption significantly.
Historical patterns indicate that while consumption may dip immediately after price hikes, it tends to recover over time. The report forecasts a marginal impact on CPI inflation, estimating around 15-20 bps in May-June 2026. Consequently, the FY27 forecast has been revised to 4.7%. The report clarifies that this hike will not directly affect the fiscal situation.
Earlier, the government had reduced excise duty by Rs 10 on diesel and petrol during the year to support OMCs, resulting in an estimated revenue loss of Rs 1.1 lakh crore for the center. A complete excise rationalization to zero for OMC support would cost the center about Rs 1.9 lakh crore and states about Rs 80,000 crore.
The report cautions that further rupee depreciation could offset the benefits of the fuel price revision. It explains that an additional depreciation of Rs 2 from the FY27 average of Rs 94 to the dollar would nullify the gains from the domestic fuel price adjustment. The rupee’s proximity to a critical depreciation threshold raises concerns about potential erosion of the intended benefits.
