Petrol and diesel prices have increased by nearly ₹4 per litre. Therefore, this rise will affect household budgets. However, the bigger question concerns India’s economy. State Bank of India’s latest Ecowrap report studied this issue closely. According to its figures, consumers face immediate pressure. Yet, the report says this increase will not directly damage India’s fiscal health.
Inflation May Move Slightly Higher
SBI’s report says higher fuel prices will quickly affect CPI-based inflation. During May-June 2026, inflation may rise by 0.15 to 0.20 percent. In basis points, this means a 15-20 point increase. Because of this, the FY27 inflation estimate has moved to 4.7%. Interestingly, people often reduce fuel use after price hikes. However, consumption returns to normal after some time. On a yearly basis, petrol-diesel sales do not usually show any major decline.
Oil Companies Faced Heavy Losses
The reason behind this increase lies in oil companies’ accounts. Retail prices had stayed stable for a long time. Meanwhile, Brent crude prices remained high in global markets. As a result, oil marketing companies faced heavy losses. The report, citing a Union minister, says these companies lost nearly ₹1,000 crore daily. On a yearly basis, this amount reaches ₹3.6 lakh crore.
Current Hike Offers Limited Relief
The latest ₹3 per litre increase will give oil companies relief worth ₹52,700 crore. However, this amount covers only 15% of their estimated FY27 losses. So, the price hike gives limited support. Still, it reduces part of the financial pressure on companies. The report connects this step with their rising under-recoveries and market-linked stress.
Tax Cut Could Hurt Revenue
If the government cuts taxes to help consumers, the fiscal equation will change fully. Currently, petrol carries 11.9% excise duty. Diesel carries 7.8% excise duty. If the government reduces this duty to zero, revenue may fall by ₹1.9 lakh crore. Moreover, without spending cuts, India’s fiscal deficit may rise by 0.5% of GDP.
March Duty Cut Adds More Pressure
The report also includes the net loss from March’s ₹10 duty cut. After adding that loss, the government’s total deficit may reach ₹3 lakh crore this fiscal year. At present, the ₹3 increase covers 15% of losses. However, making duty zero would cover 53% of the burden. Therefore, tax relief may ease prices but hurt government finances.
States May Also Face Losses
Central policy directly affects state revenues. According to SBI’s estimate, states may lose ₹80,000 crore if the Centre cuts excise duty to zero. However, higher oil prices may give states an extra ₹30,000 crore. Even then, their net loss would stand at ₹50,000 crore. Thus, the report shows how fuel pricing affects consumers, companies, Centre, and states together.
