Petrol and diesel prices increased for the second time in five days
The prices of petrol and diesel have increased by about Rs 4 per liter. This increase is sure to affect the budget of the common man, but what effect will it have on the country’s economy? The latest ‘Ecowrap’ report of State Bank of India (SBI) has investigated this entire matter in depth. The figures of the report show that even though the immediate burden on your pocket may increase, this increase is not going to have any direct negative impact on the fiscal health of the country. Let us understand which rule of economics is working behind this increase of Rs 4.
The inflation meter will rotate a little faster
The SBI report makes it clear that due to increase in oil prices, there will be an immediate jump in the consumer price index (CPI) based inflation rate. The inflation rate is expected to increase by 0.15 to 0.20 percent (15-20 basis points) during May-June 2026. For this reason, the inflation rate estimate for the financial year 2026-27 (FY27) has been increased to 4.7%. The interesting thing is that whenever oil prices increase, people initially reduce consumption. But after some time this consumption comes back to normal level. There is no significant decline in the sales of petrol and diesel on an annual basis.
Huge losses of oil companies
Why did this increase happen? The answer lies in the books of accounts of petroleum companies. Despite retail prices remaining stable for a long time, the prices of Brent crude were rising in the international market. Due to this, oil marketing companies (OMCs) were suffering huge losses. Quoting the Union Minister, the report states that these companies are incurring losses of around Rs 1,000 crore every day. If calculated annually, this amount comes to Rs 3.6 lakh crore. This latest increase of Rs 3 per liter will provide relief of Rs 52,700 crore to companies. This amount is only 15 percent of their total estimated loss in the financial year 2027.
If the tax is abolished, it will affect the government treasury.
If the government chooses the path of tax reduction to provide relief to consumers, the equations will change completely. Currently, excise duty is 11.9% on petrol and 7.8% on diesel. If the government reduces it to zero, there will be a huge loss of about Rs 1.9 lakh crore to the government revenue. If the government does not cut its expenses, the country’s fiscal deficit may increase by 0.5% of the GDP. If the net loss of duty cut of Rs 10 made in March is also included, then the total loss of the government in the current financial year can reach Rs 3 lakh crore. At present, the increase of Rs 3 is compensating 15% of the loss, whereas reducing the duty to zero will compensate 53%.
Full multiplication of states’ earnings
The policies of the Center have a direct impact on the exchequer of the states. According to SBI estimates, if the Center reduces its excise duty to zero, the state governments will face a direct hit of Rs 80,000 crore (0.8 lakh crore). However, due to increased oil prices, states will also get additional benefit of about Rs 30,000 crore. In such a situation, the total net loss to the states will be Rs 50,000 crore.
Also read- Petrol and diesel prices increased again, prices increased for the second time in 5 days.
