GST can make fuel cheaper by up to Rs 20 and Rs 25 per litre: Study

Prices could come down by up to Rs 20 and Rs 25 per litre for diesel and petrol, respectively, if they are brought under the goods and services tax (GST) drawing a peak rate of 28 per cent under the current global crude oil prices and exchange rate, revealed a study.

With some assumption, SBI Research in its latest study found that diesel and petrol prices would come down to Rs 68 and Rs 75 per litre, respectively, across India.  

The study has assumed global crude oil price at the current levels of $60 per barrel, rupee-dollar exchange rate at Rs 73, transportation charges of Rs 7.25 for diesel and Rs 3.82 for petrol, dealer commission of Rs 2.53 for diesel and Rs 3.67 for petrol, cess of Rs 30 for petrol and Rs 20 for diesel, with equal division between states and the Centre (Rs 15 for states and the Centre each for petrol and likewise for diesel at Rs 10).

At this price, with multiple simulations, the Centre and states have a revenue deviation from the Budget Estimates by only Rs 1 trillion, or 0.4 per cent of gross domestic product, after adjusting for increase in consumption with the intended price cut.

A dollar increase in crude oil prices will push up petrol price by 50 paise and diesel by 150 paise per litre and bring down the overall deviation by Rs 1,500 crore under the study’s baseline scenario.

“When we use this tax structure for 2021-22 (FY22), we see states with the highest rates losing revenue if they shift to this GST regime. But this flat taxation structure brings in uniformity. According to our calculations, it brings down the burden of taxes on the common man by almost Rs 10-30, depending on the product consumed and the state in which it is consumed,” said SBI Group Chief Economic Advisor Soumya Kanti Ghosh.

Additionally, it benefits some states that do not drastically tax their petroleum products, like Uttar Pradesh.

The study has assumed petrol consumption growth rate at 10 per cent year-on-year, diesel consumption growth rate at 15 per cent for FY22.

Interestingly, the study’s simulation exercise suggests that when crude oil per barrel declines by $10, the Centre and states could save close to Rs 18,000 crore, if they keep petrol prices at a baseline of Rs 75 and diesel at Rs 68 and don’t pass on the benefit to consumers.

This is higher than the savings at Rs 9,000 crore, when crude oil prices go up by $10 per barrel and if in the same vein the increased prices are not passed on.

“We recommend the government build up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross-subsidising the fund saved from good times, without hurting the consumer,” said Ghosh.

Separately, for liquefied petroleum gas cylinders, Ghosh proposed an increased and graded subsidy for poor consumers which can be tapered over a period of, say, five years.

“For this, the government can create a comprehensive merged databank using databases of Ayushman Bharat, Pradhan Mantri Kisan Samman Nidhi, Pradhan Mantri Jan-Dhan Yojana, Pradhan Mantri Ujjwala Yojana, and Pradhan Mantri MUDRA Yojana, and then provide people with a maximum four free cylinders in a year. Even if 50 million people are eligible, the total cost to the exchequer per year will be a maximum of Rs 16,000 crore,” added Ghosh.