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SBI's Ecowrap bats for oil price stabilisation fund for bad days

SBI’s Ecowrap bats for oil price stabilisation fund for bad days
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SBI’s Ecowrap bats for oil price stabilisation fund for bad days

Highlights

The report says that petrol & diesel prices can be reduced to `75 & 68 per litre

Mumbai: The research wing of the country's largest lender, State Bank of India (SBI), Ecowrap has recommended the government for setting up of oil price stabilisation fund.

The idea is that the fund can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer.

Also, the wing has suggested for bringing the petrol and diesel under GST limits and keep the prices of petrol and diesel at Rs 75 and Rs 68 per litre only. At present, the petrol price has gone an all time high and was zooming at around Rs 100 per litre. Our base price for petrol and diesel comes out to be Rs 75 and Rs 68 per litre, respectively at pan India level. At this base price, with multiple simulations Centre & States have a revenue deviation from budget estimates by only Rs 1 lakh crore/0.4 per cent of GDP after adjusting for the increase in consumption with the intended price cut.

A Dollar increase in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by around 150 paise and bring down the overall deviation by around Rs 1500 crore under our baseline scenario. "When we use this tax structure for FY22, when Centre and states taxes are already so high, we see that states which have the highest rates are losing revenue if they shift to this GST regime. But this flat taxation structure brings in uniformity and as per 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. Additionally, it benefits some states which do not drastically tax their petroleum products, like Uttar Pradesh," says Soumya Kanti Ghosh, chief economic advisor, SBI group.

Interestingly, our simulation exercise suggests that when crude oil/bbl declines by $10, Centre & States could save close to Rs 18,000 crore, if they keep the petrol prices at baseline Rs 75 & diesel at Rs 68 and don't pass on the benefit to consumers. This is higher than the savings at Rs 9000 crores, when crude prices go up by $10/bbl and if in the same vein increased prices are not passed on. We thus recommend Government builds up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer, he added.

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