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States can cut petrol prices by Rs 2.65 a litre and diesel prices by Rs 2 litre, a SBI research report has said. This suggestion has come at a time when government-owned oil marketing companies have hiked fuel prices for 15th successive day.
Retail price of petrol on Monday were at Rs 78.27 a litre in Delhi, Rs 86.08 a litre in Mumbai, Rs 80.91 a litre in Kolkata and Rs 81.26 a litre in Chennai. All these prices are the highest so far.
Similarly, diesel was being sold at Rs 69.17 a litre in Delhi, Rs 71.72 a litre in Kolkata, Rs 73.64 a litre in Mumbai and Rs 73.03 a litre in Chennai. Now the good news is that Brent crude prices have slipped from a record high of $80 a barrel (one barrel = 159 litres) and is now hovering in the range of $75-76 a barrel.
The Government has maintained that it is trying to find out a solution for rising fuel prices. A report authored by Dr. Soumya Kanti Ghosh Group, Chief Economic Adviser, SBI, believed that finding a lasting solution to the current increase in oil prices is a delicate balancing act.
“Our analysis shows that at the current crude prices, and extending our analysis to 19 States (overall consumption share is 93 per cent both in petrol and diesel), the States could have gained at least an additional Rs 18,728 crore of revenue/Rs 2,675 crore additional revenue over and above the budget estimates of States revenue for every $1/barrel increase in oil prices,’’ it said.
It further added that given that these revenue if foregone will not impact the 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,” it said.
It has one more suggestion to lower the prices but it could raise fiscal deficit for the States. “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 Centre’s tax. If this was the case, diesel prices could further reduce by Rs 3.75 /litre and petrol prices by Rs 5.75/ litre,” it said, while adding that such an exercise would cost Rs 34,627 crore of tax revenues and translate into 0.2 per cent of consolidated fiscal deficit of states.
Supporting Centre’s reluctance on reducing the excise duty, the report said that 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. This will push up the deficit of Centre, unlike states.
“We strongly believe that the revenue collected by the Centre on oil through excise duty has helped it to significantly step up capex expenditure from the levels of FY14. Road building has jumped by 2.3 times over 4,260 km in FY14 and railways capex by 2 times from Rs 67,432 crore in FY14 and provision of financing social sector programmes and MSP support programme in FY19 budget,” it said.
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