States await big share from excise on oil products

Excise duty on oil products contributed as much as 63 per cent of the total excise mop-up in the last FY

Indian states are on course to get an additional Rs 24,000 crore bounty or more from the Centre as a share of the excise duty on oil products this financial year (FY), which is set to jump by around Rs 60,000 crore. This is a big boost to states finances.

According to the 14th Finance Commission, the Centre has to give 42 per cent of the incremental excise mop up on oil products to states from the FY 2015 to the FY 2020.

Excise on oil products has been the biggest contributor to this form of tax kitty of the Centre, as it has been increasing the excise duty on oil products since mid 2014 after the crash in crude prices, .

While it contributed as much as 63 per cent of the total excise mop-up in the last FY, up from 46 per cent in the previous FY, it is going to jump by around Rs 60,000 crore this year to Rs 1,78,600 crore.

The government has jacked up the basic excise duty on diesel and petrol by Rs 6.5/litre and Rs 7.75/litre, respectively, in four tranches between November 2014 and January 2015.

"Excise collections on oil products may expand by an incremental Rs 55,000-60,000 crore in the current FY and 42 per cent of these incremental collections would devolve to the states. This is equivalent to Rs 22,000-24,000 crore, which is sizeable in relation to the estimated devolution of excise on fuels of Rs 36,400 crore in 2015-16, and a positive factor for the states' fiscal health for this FY," Icra's chief economist Aditi Nayar said in a report.

She adds this estimate is contingent on the facts that the basic excise duty on petrol and diesel continues unchanged in the remainder of this year and consumption of these items grows by an average of 5 per cent.

The contribution of oil products to the overall excise duty levied by the Centre has increased significantly from 46 per cent in 2013-14 to around 63 per cent in 2015-16, following a high growth rate of excise on fuels in the recent years, the report notes.

While the Centre mopped up Rs 79,400 crore from oil products in the FY 2014-15, 23 per cent of it or Rs 17,900 crore were devolved to the states in that year.