A $1/barrel increase in oil prices, translates in a revenue of Rs 1,513 crore to all major (19) states, according to a SBI research note
Thanks to the fall in the dollar-rupee and rise in petrol and diesel prices, states will garner an additional Rs 22,700 crore in revenue over and above budget estimates, according to a State Bank of India (SBI) research note.
“A $1/barrel increase in oil prices, translates in a revenue of Rs 1,513 crore to all major (19) states,” said the note authored by SBI’s Group Chief Economic Adviser Soumya Kanti Ghosh.
Ghosh sees the largest revenue gain for Maharashtra (Rs 3,389 crore), followed by Gujarat (Rs 2,842 crore). “This windfall gain will have a positive impact on state finances, which might push down the fiscal deficit of states by 15-20 basis points, other things remaining unchanged,” he said.
The Indian currency has depreciated nearly 13 percent since the beginning of this year. On September 10, the Indian currency closed at a record Rs 72.46 after touching a fresh low in intra-day trading at Rs 72.67, down 94 paise (from previous close) against the dollar.
The recent depreciation in the dollar-rupee, with rising crude oil prices, has significantly impacted domestic petrol and diesel prices.
Since March, petrol and diesel prices in the national capital have increased by Rs 5.60 and Rs 6.31, respectively. Petrol price has now crossed Rs 89 a litre in Maharashtra.
“The price variation in different states is primarily due to different rates of value added tax. For example, Maharashtra (39.12 percent per litre) has the highest rate of VAT on petrol and Goa (16.66 percent per litre) the lowest. All other states lie in this range only,” it said.
States like Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Andhra Pradesh, Rajasthan and Karnataka have the privilege to cut petrol prices by at least Rs 3 per litre from their existing rates and Rs 2.5 on diesel, the report stated.
Rajasthan and Andhra Pradesh have already pared rates.
"Since states have an incremental revenue over the budgeted one, they could cut average petrol prices by Rs 3.20 /litre and diesel by Rs 2.30/ litre, without affecting their revenue arithmetic," it added.“Interestingly, if the states impose VAT on base price (crude oil + transportation cost+ commission), then diesel and petrol prices could drop as much as Rs 3.75 and Rs 5.75, respectively. However, this will result in a revenue loss of around Rs 12,000 crore (net of Rs 34,627 crore loss and Rs 22,700 crore gain from oil bonanza) for states,” the SBI note added.