The likely hit on central government finances due to this reduction will be about INR130 billion and on aggregate state finances INR32.5 billion.
However, if state governments also make adjustment to VAT rates on petrol and diesel to match the cut in excise duty (INR1.5/litre on petrol and INR1.75/litre on diesel), the aggregate impact on inflation will be of around 14bp but the aggregate state revenue would be down by an additional INR97.5 billion. At the aggregate level, 16.6% of the states own tax revenue comes from petroleum products. However, for some states such as Assam, Gujarat, Manipur and Rajasthan it is more than 20%.
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