Fuel price hike gives OMCs ₹52,700 crore relief, covers 15% of FY27 losses
Synopsis
India's ₹3-per-litre fuel price hike offers OMCs ₹52,700 crore in relief — but SBI Research warns it covers just 15% of projected FY27 losses, and a ₹2 rupee slide could wipe out every paisa of that gain. The numbers reveal how precarious the OMC balance sheet really is.
Key Takeaways
The ₹3 per litre fuel price hike provides OMCs up to ₹52,700 crore in under-recovery relief, per SBI Research .
This covers roughly 15% of the estimated total OMC losses for FY27 , projected at ₹3.6 lakh crore annually (or ₹1,000 crore per day ).
CPI inflation is expected to rise by 15–20 basis points in May–June 2026 ; FY27 inflation forecast revised to 4.7% .
The Centre had earlier cut excise duty by ₹10 per litre , costing it ₹1.1 lakh crore in revenue.
An additional rupee depreciation of ₹2 beyond the FY27 average of ₹94/dollar could fully negate the hike's benefits, the report warned.
The ₹3 per litre retail fuel price increase announced recently is set to ease the financial strain on oil marketing companies (OMCs), providing up to ₹52,700 crore in relief on their under-recoveries, according to a report by SBI Research released on Saturday, 16 May. The relief amounts to roughly 15 per cent of the projected total losses OMCs are expected to incur in FY27.
Scale of OMC Losses
Under-recoveries on petrol and diesel have been mounting steadily, as retail prices were held unchanged even as Brent crude prices climbed. The government has estimated OMC losses at approximately ₹1,000 crore per day — translating to a staggering ₹3.6 lakh crore annually. The ₹52,700 crore relief, while significant, covers only a fraction of that exposure.
Impact on Inflation and Consumption
The SBI Research report projects that the immediate impact of the fuel price hike on Consumer Price Index (CPI) inflation will be in the range of 15–20 basis points during May–June 2026. As a result, the research unit has revised its FY27 inflation forecast upward to 4.7 per cent. Notably, the report found no direct impact of the hike on the fiscal deficit.
On consumption, historical data suggests that fuel demand dips briefly following price increases but tends to recover over the course of the year. The report, accordingly, does not anticipate any lasting reduction in annual oil consumption.
Excise Duty Context
The government had earlier reduced excise duty on petrol and diesel by ₹10 per litre, a move that cost the Centre an estimated ₹1.1 lakh crore in foregone revenue. A complete rationalisation of excise duty to zero — a more drastic option to further support OMCs — would cost the Centre approximately ₹1.9 lakh crore and states around ₹80,000 crore, according to the report.
Rupee Depreciation Risk
The report flagged a critical caveat: further weakening of the Indian rupee could substantially erode the benefits of the domestic price revision. According to SBI Research, an additional depreciation of ₹2 — from the FY27 average of ₹94 to the dollar — would fully offset the gains from the fuel price hike.
'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 stated.
With the rupee under pressure and global crude markets remaining volatile, the net relief to OMCs could prove narrower than the headline figure suggests. All eyes will be on crude price trends and the rupee's trajectory in the coming months.
Point of View
700 crore relief figure sounds large until you set it against ₹3.6 lakh crore in annual OMC losses — at which point it looks like a bandage on a haemorrhage. The deeper problem is structural: retail fuel prices in India remain a political instrument, adjusted reluctantly and rarely, while global crude and currency markets move daily. SBI Research's rupee warning is the sharpest line in the report — a ₹2 slide erases the entire gain, and the rupee is already near that threshold. The government's reluctance to either fully pass through crude costs or fully absorb them via excise cuts leaves OMCs perpetually under-capitalised, and the fiscal arithmetic increasingly strained.
NationPress
10 Aug 2026
Frequently Asked Questions
How much relief does the fuel price hike provide to oil marketing companies?
The ₹3 per litre retail fuel price hike is expected to provide oil marketing companies up to ₹52,700 crore in relief on their under-recoveries, according to SBI Research. This equals roughly 15% of their projected total losses in FY27.
What are the projected total losses of OMCs in FY27?
The government has estimated OMC losses at approximately ₹1,000 crore per day, amounting to around ₹3.6 lakh crore for the full financial year FY27. Under-recoveries have surged because retail prices were held steady even as Brent crude prices rose.
Will the fuel price hike push up inflation?
Yes, but moderately. SBI Research estimates an immediate CPI inflation impact of 15–20 basis points in May–June 2026, and has revised its FY27 inflation forecast to 4.7%. The report notes there is no direct impact on the fiscal deficit.
What is the risk of rupee depreciation to OMC relief?
SBI Research warned that an additional depreciation of ₹2 — from the FY27 average of ₹94 to the dollar — would fully offset the gains from the domestic fuel price revision. The rupee is already near what the report calls a 'critical depreciation threshold.'
What role has excise duty played in supporting OMCs?
The government had earlier reduced excise duty on petrol and diesel by ₹10 per litre, at an estimated revenue cost of ₹1.1 lakh crore to the Centre. A full rationalisation of excise to zero would cost the Centre ₹1.9 lakh crore and states ₹80,000 crore, per the SBI Research report.
