Rs 22,000 Crore Bonanza For States  In The Offing As Crude Prices Soar And Rupee PlummetsA bank staff member counts Indian 500 rupee notes to give to customers. (INDRANIL MUKHERJEE/AFP/Getty Images) 

While the rising crude prices and plummeting rupee have caused grief to consumers, state governments are expected to reap windfall gains in tax revenues to the tune of Rs 22,700 crores over and above their budget estimates.

The SBI Research Report also states that with every $1 per barrel increase in oil prices, the 19 major states gain an additional revenue of an average Rs 1513 crore. It is expected that the largest gains would accrue to Maharashtra followed by Gujarat. Incidentally, Maharashtra charges the highest rate of Value Added Tax (VAT) at Rs 39.12 on a litre of petrol while Goa has the lowest VAT rate among all states.

The report also predicts that the fiscal deficit for states could reduce by 15-20 basis points on the back of this unexpected windfall provided that other economic factors remain constant. Interestingly, the report makes the case for a reduction in fuel prices to the tune of Rs 3.20 per litre on petrol and Rs 2.30 per litre on diesel and that this reduction would not upset states’ revenue calculations.

According to the SBI report, this is the reduction states can offer:

Rs 22,000 Crore Bonanza For States  In The Offing As Crude Prices Soar And Rupee Plummets

State-wise VAT/Sales revenue from petrol and diesel:

Rs 22,000 Crore Bonanza For States  In The Offing As Crude Prices Soar And Rupee Plummets

Specifically, Maharashtra, Tamil Nadu, Karnataka, Rajasthan, Andhra Pradesh, Madhya Pradesh and Punjab have been identified as states with the requisite fiscal headroom to make such cuts. Among the aforementioned states, Rajasthan and Andhra Pradesh have already announced cuts in the VAT rate applied on petrol and diesel and it remains to be seen if the other states also follow suit.

An Appeal...

Dear Reader,

As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

Our business model is you and your subscription. And in challenging times like these, we need your support now more than ever.

We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

Become A Patron
Become A Subscriber