Indian states await a big boost to their finances this year as they are on course to get an additional Rs 24,000 crore bounty or more from the Centre by way of the excise duty share on oil products this fiscal year, which is set to jump by around Rs 60,000 crore.
As per the 14th Finance Commission wards, the Centre has to part 42 percent of the incremental excise mop-up on oil products with the states from 2015 through 2020 fiscals.
Since the government has been increasing the excise duty on oil products since mid 2014 after the crash in crude prices, excise on oil products has been biggest contributor this form of tax kitty.
While it contributed as much as 63 percent of the total excise mop-up last year, up from 46 per cent in the previous year, 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 fiscal year and 42 percent 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 this fiscal,” 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 percent.
The contribution of oil products to the overall excise duty levied by the Centre has increased significantly from 46 percent in 2013-14 to around 63 percent 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 2014-15, 23 percent of it or Rs 17,900 crore were devolved to the states in that year.