A ₹2 fall against USD could wipe out gains from fuel price hike: Report

The recent ₹3 per litre increase in petrol and diesel prices will offset only about 15% of state-run fuel retailers' expected losses this fiscal year, while any further weakening of the rupee could wipe out those gains, according to a report by SBI Research.

The report said the fuel price hike is expected to provide relief of about ₹52,300-52,700 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.

According to the government, OMCs are currently incurring losses of around ₹1,000 crore per day, which translates into approximately ₹3.6 lakh crore annually.

Against this, the latest retail fuel price increase would cover only 15% of the expected total losses in FY27, SBI Research said.

The report highlighted that the benefit of the fuel price hike is highly sensitive to exchange rate movements.

According to SBI Research, 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 report said.

“Thus, 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,” it said.

SBI Research noted that volatility in crude oil prices and the rupee exchange rate has increasingly converged, especially after the Iran conflict, indicating that fluctuations in global oil markets are being transmitted more strongly to the domestic currency.

The report said the fuel price increase is unlikely to have a lasting impact on consumption.

Historical trends show that while fuel demand may dip immediately after a price increase, annual consumption levels generally continue to rise, it said.

SBI Research estimated that the increase in petrol and diesel prices would push up consumer price inflation by 15-20 basis points during May and June 2026.

Accordingly, it revised its inflation forecast for FY27 to 4.7%.

The report said there would be no direct impact of the latest price hike on the fiscal deficit.

However, it examined a scenario in which the Centre reduces excise duty on petrol and diesel to zero to provide further relief to OMCs.

Under such a scenario, the Centre would forgo revenue of around ₹1.9 lakh crore, equivalent to about 0.5% of GDP, if expenditure remains unchanged, it said.

Including the estimated revenue loss from the earlier ₹10 per litre excise duty cut, the total fiscal cost to the Centre could rise to nearly ₹3 lakh crore.

The report said that while the current ₹3 price increase covers 15 per cent of OMC losses, eliminating excise duties entirely could cover about 53 per cent.

State governments would also be affected if excise duties are cut to zero.

According to SBI Research, 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.