States can cut fuel price by Rs 2, if they forego extra taxes: SBI

New Delhi: 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, a SBI report said on Monday.

“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 FY19),” 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 dollar/barrel rise in crude 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 fuel 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 Centre cuts excise by Rs 1, loss of revenue will be to the tune of Rs 10,725 crore.