Brokerages expect oil marketing companies (OMCs) to raise retail fuel prices after the state elections, even as the Centre leans on fiscal measures to cushion the impact of a sharp surge in crude prices triggered by the West Asia conflict.

Economists at Morgan Stanley India said any near-term adjustment in pump prices is likely to be deferred until polling concludes in Assam, Kerala, Tamil Nadu and Bengal. “If elevated crude prices persist for a quarter or more, we expect a partial pass-through to consumers through staggered hikes,” Upasana Chachra, chief India economist and colleagues at Morgan Stanley India said in a report.

India’s crude basket crossed $130 per barrel on April 2, according to petroleum ministry data. Despite this, state-run OMCs have held pump prices steady. Instead, the government has cut special additional excise duty on petrol and diesel by ₹10 per litre each to limit OMC under-recoveries, reimposed windfall taxes on exports—₹21.5 per litre on diesel and ₹29.5 per litre on aviation turbine fuel—and granted customs duty relief on select petrochemical inputs until June 30, 2026.

The excise duty cut has drawn criticism from the opposition parties, who allege the move is made keeping elections in mind. Meanwhile, price increases have been effected in other segments, including domestic and commercial LPG, premium petrol, industrial diesel and certain plastics. Private retailer Nayara Energy has already raised petrol and diesel prices by ₹5 and ₹3 per litre, respectively.

Motilal Oswal expects OMCs to hike retail prices by ₹2–4 per litre towards the end of the first quarter of FY27 if crude remains elevated. Based on revised CPI weights, the brokerage estimates a direct inflation impact of 10–20 basis points for such increases.

On the fiscal front, economists warn that the government’s FY27 deficit target of 4.3 per cent of GDP could come under pressure. Morgan Stanley estimates a potential slippage of 0.3–0.5 percentage points due to higher subsidy outgo (fertiliser and fuel), excise cuts and possible revenue shortfalls, necessitating expenditure prioritisation.

Motilal Oswal pegs the fiscal deficit closer to 4.7 per cent for FY27, factoring in potential cuts in capital expenditure and the likelihood of higher-than-budgeted dividends from the RBI.