Govt’s bonanza from lower oil prices

The government will garner Rs.2.1 trillion revenue from the oil sector in fiscal 2016 by way of cess, excise and royalties, almost double that of a year ago, say analysts


The government has also had the benefit of lower subsidy payments due to the fall in oil prices. Photo: Ramesh Pathania/Mint
The government has also had the benefit of lower subsidy payments due to the fall in oil prices. Photo: Ramesh Pathania/Mint

In a year of deflation and lower nominal economic growth, one reason why the government may well achieve its fiscal deficit target is because of the boost from the oil sector.

As crude prices plunged, the government repeatedly hiked excise tax rates on petroleum products. Thus, the government will garner Rs.2.1 trillion revenue from the oil sector in fiscal 2016 by way of cess, excise and royalties, almost double that of a year ago, according to Motilal Oswal Financial Services Ltd’s calculations.

The government has also had the benefit of lower subsidy payments due to the fall in oil prices.

With most of these taxes being specific in nature and linked to volumes, there is unlikely to be a huge increase in these revenues in fiscal 2017 even if the prices were to change.

But at Rs.2 trillion, they would still make up a sizeable portion of gross tax revenues.

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