Will Govt Hike Excise Duty On Petrol, Diesel Ahead Of Budget 2026? What JM Financial Says

With the Union Budget for 2026–27 set to be presented on February 1, the government may be considering an increase in excise duty on petrol and diesel as a revenue-boosting measure, according to a recent report by JM Financial.

The brokerage believes that an excise duty hike of Rs 3-4 per litre on auto fuels is “quite likely” ahead of the Budget, especially at a time when global crude oil prices remain subdued and the Centre faces pressure on its fiscal math.

“We believe Brent price is likely to remain subdued at around $65 per barrel until the November 2026 US mid-term elections, as Saudi Arabia-led OPEC+ helps maintain the current huge oversupply of 2-3 million barrels per day. Hence, we believe a Rs 3-4 per litre excise duty hike on auto fuels

is quite likely ahead of the February 1, 2026, Union Budget, as it can boost government revenue by a sizeable Rs 500–700 billion (or Rs 50,000-70,000 crore) on an annualised basis, or about 0.15-0.2% of GDP,” JM Financial said in the report on Thursday, January 8, 2026.

JM Financial pointed out that oil marketing companies (OMCs) are currently enjoying significantly higher-than-normal fuel marketing margins due to the sharp fall in crude prices. At a Brent crude price of around $61 per barrel, OMCs are earning an auto-fuel gross marketing margin (GMM) of about Rs 10.6 per litre, far above the historical normalised level of roughly Rs 3.5 per litre. On an integrated basis, combining refining and marketing, the margin stands at around Rs 19.2 per litre, compared with a long-term average of about Rs 12.2 per litre.

“Hence, at spot Brent price of ~USD 61/bbl, OMCs’ GMM and integrated margin is INR 6-7/ltr higher than the normalised level,” the report said.

This margin cushion, JM Financial argued, gives the government room to raise excise duty without immediately pushing up retail fuel prices. According to its estimates, every Rs 1 per litre increase in excise duty on auto fuels can generate about Rs 17,000 crore in annual revenue. A Rs 3-4 per litre hike could therefore yield Rs 50,000-70,000 crore annually, or around 0.15-0.2% of GDP.

The brokerage flagged that the Centre’s revenue position is already under strain. Central government revenues during April-November 2025 were around 56% of the full-year budget estimate, compared with 60% in the same period last year. At the same time, capital expenditure has remained strong, reaching nearly 59% of the annual target in the first eight months of the fiscal.

JM Financial also noted that slower nominal GDP growth, estimated at about 8% for FY26, could make it harder for the government to meet its fiscal deficit target of 4.4% of GDP. Its economist team expects the Centre to further tighten its fiscal stance, potentially lowering the deficit target to 4-4.2% of GDP in FY27.

Against this backdrop, the brokerage sees fuel excise duty as a relatively easy lever. “We believe the government may have deferred the excise duty hike decision awaiting clarity on the likely price at which Brent stabilises,” the report said, adding that crude prices near $70 per barrel would limit the scope for such a move.

However, JM Financial expects Brent crude to remain soft at around $65 per barrel until the US mid-term elections in November 2026. It attributed this outlook to Saudi Arabia-led OPEC+ maintaining a large global oversupply of 2–3 million barrels per day, partly to keep oil prices low and inflation under control in the US. This, in turn, strengthens the case for an excise hike in India, it said.

The government has already shown willingness to raise indirect taxes, the brokerage noted, pointing to the recent increase in excise duty on cigarettes effective February 1, 2026, expected to boost revenue by about ₹50 billion.

An excise hike, however, would have implications for OMC profitability. JM Financial highlighted that every Rs 1 per litre change in auto-fuel GMM can move consolidated EBITDA of OMCs by 12-17%. Among the three major players — HPCL, BPCL and IOCL — HPCL is the most sensitive due to its higher dependence on the marketing business.

Given valuation concerns and the risk that elevated margins may not be sustainable if the government captures the benefit of lower crude prices through higher excise duty, JM Financial said it remains cautious on the sector. It reiterated a “sell” rating on HPCL and “reduce” ratings on BPCL and IOCL.