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 per cent 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 per cent 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 per cent 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 per cent.
The contribution of oil products to the overall excise duty levied by the Centre has increased significantly from 46 per cent in 2013-14 to around 63 per cent 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 per cent of it or Rs 17,900 crore were devolved to the states in that year.
On a gross basis, the Centre’s excise duty collections on oil products rose to Rs 99,200 crore in 2014-15 from Rs 78,000 crore in 2013-14.
As per the 2014 and 2015 data, components of excise duty on petrol and diesel that are not sharable with the states (road cess and surcharge) went up from Rs 32,400 crore in 2014 to Rs 40,200 crore in 2015.
The sharable component, therefore, rose from Rs 45,600 crore in 2014 to Rs 59,000 crore in 2015.
As much as 32 per cent of the latter would have been devolved to the states, as per the prevailing sharing formula, based on the recommendations of the 13th Finance Commission for its award period 2011 to 2015.
The combined excise collections on oil products nearly doubled to Rs 1,78,600 crore in FY16 from Rs 99,200 crore in FY15, benefiting partly from the full year impact of the earlier rise in road cess.
Moreover, between November 2015 and January 2016, basic excise duty on diesel and petrol were increased by Rs 7 and Rs 4 a litre, respectively, in five tranches, while demand grew by 7.5 per cent and 14.5 per cent, respectively during this period.
According to estimate, the non-shareable components of excise duty on oil products more-than-doubled from Rs 40,200 crore in FY2015 to Rs 90,500 crore in FY16.
The shareable component of excise collections is, therefore, estimated to have increased by a relatively subdued Rs 29,100 crore, from Rs 59,000 crore in FY15 to Rs 88,100 crore in FY16.
Icra estimates that the excise revenue collected by the Centre on oil products that were shared with the states doubled to Rs 36,400 crore in FY16 from Rs 18,500 crore in FY15, while remaining modest in absolute terms.
In percentage terms, around 23 per cent of the gross increase in excise duty on oil products of Rs 79,400 crore in FY16, relative to FY15, would have been shared with the states, while the rest would have been retained by the Centre, including the amount transferred to the Central Road Fund.