Rising petrol, diesel prices to give states windfall gain of Rs 227 bn: SBI

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Lending major State Bank of India (SBI) on Tuesday said that the recent increase in petrol and diesel prices is likely to give state governments a windfall gain of around Rs 227 billion "over and above the budget estimates for current fiscal".

According to an SBI Ecowrap report, the windfall gain is due to the VAT (value added tax) levied by the state governments on petrol and diesel.

"This windfall gain will have positive impact on state finances, which might push down the states' fiscal deficit by 15-20 bps, other things remaining unchanged," the report said.

"We also estimate that since the states are having an incremental revenue over the budgeted one, they could cut on an average petrol prices by Rs 3.20 /litre and diesel by Rs 2.30/litre, without affecting their revenue arithmetic."

According to the report, states like Maharashtra, Madhya Pradesh, Punjab, Tamil Nadu, Andhra Pradesh, Rajasthan and Karnataka have the privilege to cut petrol prices by at least Rs 3 from their existing rates and Rs 2.5 on diesel.

"We heartily welcome that Rajasthan and Andhra Pradesh have already pared rates," the report said.

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