States can cut petrol price by Rs 2.65 per litre and diesel by Rs 2 a litre if they decide to forego potential additional gains out of high crude oil rates, an SBI report said today. “Our analysis shows that at the current crude prices and extending our analysis to 19 states (overall consumption share is 93 per cent), the states could have gained at least an additional Rs 18,728 crore of revenue (in 2018-19),” said SBI’s Ecowrap report. It further said that states earn an additional revenue of Rs 2,675 crore over and above the budget estimates for every USD 1/barrel increase in oil prices.
“Given that these revenue if foregone will not impact states fiscal position, we estimate that on an average, states can cut petrol prices by Rs 2.65/litre and diesel by Rs 2/litre, if the entire revenue gain was to be neutralised. This is the most plausible scenario under the current circumstances,” the report said. It also said that one suggestion to further rationalise the petrol and diesel prices is to consider a pricing mechanism where VAT is imposed on base price only by states and not on prices inclusive of the Centre’s tax. If this was the case, diesel prices could further reduce by Rs 3.75 a litre and petrol prices by Rs 5.75 per litre, it said.
“However, if this was to happen, the state will have to forego Rs 34,627 crore of tax revenue / 0.2 per cent of consolidated fiscal deficit of states,” said Ecowrap. On the other hand, if the Centre cuts the excise by Re 1, the loss of revenue will be to the tune of Rs 10,725 crore for every Re 1 cut in central excise and the amount will become twice if it cuts the excise duty by Rs 2. This will push up the deficit of Centre, unlike states, it added. Petrol price has been hiked by Rs 3.64 a litre and diesel by Rs 3.24 in Delhi since state-owned oil firms ended a 19-day pre-Karnataka poll hiatus to resume daily price revision on May 14. The prices are at an all-time high.