States to get Rs 22,700 crore windfall from rupee plunge, oil spike: SBI
The largest gain will be in Maharashtra (around Rs 3,389 crore), followed by Gujarat at Rs 2,842 crore, according to the SBI report
Mumbai: The continuing plunge in the rupee, coupled with rising crude oil prices, will give the states a windfall in tax revenues to the tune of Rs 22,700 crore over and above the budget estimates for the current fiscal, according to a report.
The rupee fell to a new lifetime low of 72.73 against the dollar, falling 28 paise on Tuesday, on strengthening American currency as crude prices went past the $78 a barrel mark. This also pulled down the markets with the Sensex crashing by over 509 points, or 1.34%, to close at 37,413.13.
“The increase in petrol and diesel prices is likely to give the states a windfall gain of around Rs 22,700 crore over and above the budget estimates for the current fiscal,” SBI Research said in a note. An increase of $1 a barrel in crude price translates into a Rs 1,513 crore revenue gain on an average to all major 19 states, according to the report.
The largest gain will be in Maharashtra (around Rs 3,389 crore), followed by Gujarat at Rs 2,842 crore. Since March, petrol and diesel prices have increased by Rs 5.60 and Rs 6.31, respectively, in Delhi. Petrol price has now crossed Rs 89 per litre in Maharashtra, the highest among states. Maharashtra charges the highest VAT at 39.12% on a litre of petrol, while Goa charges the lowest at 16.66% per litre.
This windfall gain was likely to push down states’ fiscal deficit by 15-20 basis points if other things remained unchanged, the report said. “We also estimate that since states have an incremental revenue over the budgeted one, they could cut on petrol prices by an average Rs 3.20 per litre and diesel by Rs 2.30 a litre, without affecting their revenue arithmetic,” according to the report.
Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Andhra Pradesh, Rajasthan and Karnataka have fiscal headroom to lower petrol prices by at least Rs 3 and Rs 2.5 on diesel. If states impose VAT on the base price (crude, transportation cost and commission), diesel prices can drop by as much as Rs 3.75 and petrol price by Rs 5.75 a litre. However, this will result in a revenue loss to states of around Rs 12,000 crore (net of Rs 34,627 crore loss and Rs 22,700 crore gain from oil bonanza).
The calculation is based on the assumption that for 2018-19, crude averages at $75 a barrel and the exchange rate at Rs 72, SBI Research said.
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