The State Bank of India (SBI) in its Ecowrap report has stated that recent rise in petrol and diesel prices coupled with continuing plunge in the Indian rupee is likely to give state governments a windfall gain of around Rs 22,700 crore over and above the budget estimates for current fiscal. It said the windfall gain is due to the value added tax (VAT) levied by the state governments on petrol and diesel.
As per the report, this windfall gain will have positive impact on state finances, which might push down the states’ fiscal deficit by 15-20 bps, other things remaining unchanged. The report estimated that since the states are having an incremental revenue over the budgeted one, they could cut on an average petrol prices by Rs 3.20 /litre and diesel by Rs 2.30/litre, without affecting their revenue arithmetic.
The Ecowrap report noted that an increase of $1 a barrel in crude price translates to Rs 1,513 crore revenue gain on an average to all the major 19 states. It added that 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 from their existing rates and Rs 2.5 on diesel.
