Yet Another Oil Bonanza for Modi

Context: In post-pandemic India, the oil sector is one area where the government took the right steps and in good time. 

Recent Interventions in oil sector

• Hike in Excise duty by the Centre: Central government announced a steep hike in the excise duty, special additional excise duty and cess on petrol and diesel.

• State governments increased the value-added tax (VAT) on the sale of petrol and diesel:

• States like Kerala, West Bengal, Telangana and Delhi didn’t use this opportunity and witnessed relatively low growth, at just 6-9% of their full year’s revenue in 2019-20. 
• For most other states, the oil revenue in this period has been well over 15% of the full year’s collections last year.

Analysis of the Government Interventions

• No real impact on retail prices: there no impact on the retail selling price of the petroleum products due to fall in international crude oil prices.

• Revenue rise was below the estimation: Increase has taken place in a period when the consumption of petrol dropped by 25% and that of diesel by 28% in the April-August period of 2020.

• Total additional annual revenue from this sector was expected to be higher by Rs 1.85 trillion. But after considering the fall in consumption during the year, it could be Rs 1.4 trillion. 
• The indirect tax collections from the oil sector could well be over Rs 4 trillion, instead of the budgeted Rs 2.67 trillion.

• Increase in Excise collection: 

• Excise collections from petroleum products in the April-August 2020 period have risen to Rs 1 trillion, an increase of 32 % over the same period of 2019. 

• In a year, when tax revenues of the Centre under all other heads are expected to witness a huge shortfall, compared to the Budget estimates, the rise in excise collections would be a relief.

• Revenue cushion from the oil sector: Revenue from the sector largely contributed to the reduction in the government’s fiscal deficit

• The Centre’s gross tax revenues (excluding excise from oil) in April-August 2020 had declined by over 31% to Rs 4 trillion. 
• But after adding the oil excise collections, the gross tax revenues in the same period fell by 24% at Rs5 trillion.