SBI Research: Fuel Prices will Drop if Brought under GST

March 6, 2021

A State Bank of India’s report highlights that, the pan-India Prices of fuels will drop if the petrol and diesel are brought under the GST regime to ₹75 and ₹68 a litre, respectively.

Highlights of the report

SBI research further highlights that, if we assume the GST rate of 28%, cess of ₹30 and ₹20 on a litre of petrol and diesel respectively, crude oil price of $60 per barrel and rupee-dollar exchange rate of 73; then it will face a revenue deviation from Budget estimates by only ₹1 lakh crore which accounts for 0.4% of the GDP for the financial year 2021-2022.
The report also adjusted for the rise in consumption if prices of the fuel are reduced. It also assumed a 10% growth in petrol and 15% rise in diesel consumption in the fiscal year 2021-22.
The report also said that, the fiscal deficit of India in the financial year 2020-2021 could turn out to be lower as compared to the revised estimate of 9.5% of GDP to stand at about 8.7%.
So, the report suggests that, government can lower its borrowings which will help in lowering the yields on its securities.
As per the report, the Tax receipts have been bolstered by the indirect taxes which also include excise duties but the government has still about ₹90 lakh crore which could be spend for two months of the financial year 2020-21

The report suggests that, the central and the state government should discuss the fuel taxes as they are the major source of tax revenue. Reserve bank of India had also asked for a “calibrated and coordinated reduction” in the taxes which the state and central government levy.

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