The continuous rise in domestic petrol and diesel prices is likely to give states an unexpected gain of about Rs 22,700 crore over and above the budget estimates for current financial year, a research note by State Bank of India (SBI) said.

The domestic currency and the global crude prices have been on the rise with rupee hitting an all-time record low of 72.45 against the greenback. Brent crude futures climbed 38 cents,or 0.5 percent, to $77.75 a barrel on Tuesday.

In the last six months, petrol and diesel prices have climbed about Rs 5.60 and Rs 6.31, respectively in the National Capital Region (NCR). Petrol prices have crossed the Rs 89 mark in Maharashtra, registering the highest petrol price across the country.

The variation of domestic fuel prices is due to the different value added tax (VAT) rates across the states. Maharashtra collects the highest tax, about 39.12 percent per litre and adjacent state, Goa, about 16.66 percent per litre, the lowest, the report said.

A $1 per barrel increase in oil prices translates on an average of Rs 1,513 crore revenue gain to all the major 19 states, the bank said in the note, adding that the windfall gain will show a positive impact on state finances, which might push down the states’ fiscal deficit by 15-20 bps.

One basis point is a hundredth of a percentage point.

“The banks expects the states to cut on an average petrol prices by Rs 3.20 per litre and diesel by Rs 2.30 per litre. 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. We heartily welcome that Rajasthan and Andhra Pradesh have already pared rates,” the bank said.

Rajasthan chief minister Vasundhara Raje on Sunday announced that the state will reduce VAT on diesel and petrol prices by four percent.

With the reduction, petrol and diesel prices will come down by an average Rs 2.50, Raje said, adding that the state will bear a financial burden of Rs 2,000 crore due to VAT reduction.

Similarly, Andhra Pradesh chief minister N Chandrababu Naidu on Monday announced a reduction in petrol and diesel price by Rs 2 each in the state, effective from midnight.

The Andhra Pradesh government will incur a revenue loss of Rs 1,120 crore following the cut in petrol and diesel prices.

However, if the states impose VAT on the base price, which includes crude oil, transportation costs and commission, then diesel and petrol prices could fall by as much as Rs 3.75 and Rs 5.75 respectively, with states incurring a revenue loss of Rs 12,000 crore, the bank said.

“We also believe that the centre should stay put and ride out the recent volatility without any knee-jerk reactions,” the bank said.

First Published:Sept 11, 2018 3:22 PM IST