According to a report by SBI Research, the recent ₹3 per litre increase in petrol and diesel prices will offset only about 15% of the expected losses faced by state-run oil marketing companies (OMCs) in FY27. The fuel price hike is expected to provide relief of ₹52,700 crore to OMCs, which have been suffering under-recoveries due to unchanged retail prices despite a sharp rise in global crude oil prices. Petrol and diesel prices were recently raised by ₹3 per litre as Brent crude hovered around USD 107 per barrel amid disruptions in the Strait of Hormuz linked to West Asia conflict. However, the latest developments show Brent crude prices jumping more than 1% overnight to trade at $112 per barrel, with analysts warning that Rs 100 per dollar could be on the cards if the RBI does not announce schemes to increase dollar inflows.
As reported by SBI Research, the benefit of the fuel price hike is highly sensitive to exchange rate movements. According to the report, assuming an average exchange rate of ₹94 per US dollar and an average Indian basket crude oil price of USD 106 per barrel in FY27, the current landed cost of crude works out to nearly ₹9,964 per barrel. The ₹3 per litre increase in fuel prices is estimated to provide a benefit of around ₹477 per barrel to OMCs. However, even an additional depreciation of ₹2 against the US dollar would raise the effective crude import cost enough to fully neutralise this benefit. The latest rupee weakness has been compounded by Brent crude trading above $112 per barrel following a nuclear plant attack in the UAE and deteriorating geopolitical tensions with the US and Iran.
The rupee has hit an all-time low of 96.20 per dollar, marking the fifth consecutive session of record lows since the Iran conflict began in late February. According to The Economic Times, India's foreign exchange reserves have fallen by $38 billion since February as the Reserve Bank of India fights to manage volatility. The currency has declined 5.5% since the conflict began and is the worst-performing currency in Asia in 2026. Naveen Mathur, Director of Commodities, Currencies and International Business at Anand Rathi Shares, warned that if oil prices remain above $100 per barrel and the RBI steps back from intervention, the rupee could find a level of around 102 against the dollar. The RBI has spent $38 billion in total, with $28 billion spent in March alone to manage the currency's descent, though it aims to prevent excessive volatility rather than defend a specific level.
According to SBI Research, the increase in petrol and diesel prices would push up consumer price inflation by 15-20 basis points during May and June 2026. The report revised its inflation forecast for FY27 to 4.7%. Regarding fiscal implications, there would be no direct impact of the latest price hike on the fiscal deficit. However, examining a scenario where the Centre reduces excise duty on petrol and diesel to zero, the Centre would forgo revenue of around ₹1.9 lakh crore, equivalent to about 0.5% of GDP, if expenditure remains unchanged. Economists have flagged that if oil prices remain at current levels, the consequences for India's macroeconomic fundamentals could be significant, with elevated crude raising imported inflation, widening the current account deficit, and complicating fiscal arithmetic for a government with limited room to absorb an extended energy shock.
If excise duties are cut to zero, states could lose around ₹80,000 crore in gross revenue, though higher oil prices would partly offset this through an estimated ₹30,000 crore increase in tax collections, resulting in a net impact of around ₹50,000 crore. The report noted that while the current ₹3 price increase covers 15% of OMC losses, eliminating excise duties entirely could cover about 53% of the losses. SBI Research estimated that the increase in petrol and diesel prices would have no lasting impact on consumption, with historical trends showing that while fuel demand may dip immediately after a price increase, annual consumption levels generally continue to rise. The report also highlighted that if Centre's excise duty is reduced to nil, it also impacts the revenue collections of state governments, with states losing ₹0.8 lakh crore if Centre's excise duty is reduced to nil, keeping all else same.
