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The government is expecting a revenue loss of Rs 10,000 to 15,000 crore annually due to the recent recalibration in customs duty on iron and steel and plastic, an official said on Monday.

The government, with effect from May 22, waived customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry, a move which will lower the cost for the domestic industry and reduce the prices.

The duty on the import of raw materials used in the plastic industry has also been reduced to lower the cost of domestic manufacturing. Also, to increase domestic availability, the duty on exports of iron ore has been hiked up to 50 per cent, and a few steel intermediaries to 15 percent.

”The revenue loss on account of these customs duty rationalisation is expected to be around Rs 10,000-15,000 crore,” an official said. The customs duty changes in raw materials and intermediaries for iron and steel and plastic were aimed at reducing their prices and also lowering the cost of domestic manufacturing.

States have room to cut value added tax (VAT) on petrol and diesel as they gained Rs 49,229 crore from VAT revenue on fuel when oil prices were increasing and will forego Rs 15,021 crore now that retail prices have been downwardly adjusted through excise cut, State Bank of India Research said in a report on Monday.

The VAT charged by states is ad-valorem, which means their VAT collections rise when petrol and diesel prices increase and get reduced automatically when the Centre cuts excise duty.

“This implies that gains still outstrip the revenue forgone by Rs 34,208 crore and hence states can further cut the oil prices. Maharashtra has gained the most, followed by Gujarat and Telangana,” said SBI’s Chief Economic Advisor Soumya Kanti Ghosh in the report.

Ghosh said that state finances had shown improvement since the Covid-19 pandemic, indicating they have the necessary wherewithal to adjust taxes if so required. This is also reflected in lower state borrowings, the report said.

Taking all these factors into consideration and if the cushion from oil excise is entirely adjusted such that states have no gain or loss from oil revenue over and above the budgetary estimates, Ghosh said that states on an average can still cut diesel price at least by Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their VAT revenue from oil.

“Bigger states like Maharashtra, which have lower debt to GDP ratio, have significantly large fiscal space for lowering their tax on diesel and petrol by even up to Rs 5. The tax-GDP ratio of many states including Haryana, Kerala, Maharashtra, Rajasthan, Telangana, and Arunachal Pradesh is higher than 7 percent. We believe there is compelling reason for these states to adjust taxes on fuel,” Ghosh said.

In a bid to reduce inflationary pressure on households and businesses, the Centre slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre earlier this month. Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have both asked states to consider cutting VAT to further reduce inflation.

SBI Research said that the ultimate solution to reduce the complexities in oil tax structure and bring down extreme volatility in oil revenues due to would be to bring it under the ambit of GST. However, if the two fuels are put under GST, the Centre will have to let go of Rs 20,000 crore input tax credit. Thus, a fair methodology would have to be developed for this, it said.

States have room to cut value added tax (VAT) on petrol and diesel as they gained Rs 49,229 crore from VAT revenue on fuel when oil prices were increasing and will forego Rs 15,021 crore now that retail prices have been downwardly adjusted through excise cut, State Bank of India Research said in a report on Monday.

The VAT charged by states is ad-valorem, which means their VAT collections rise when petrol and diesel prices increase and get reduced automatically when the Centre cuts excise duty.

“This implies that gains still outstrip the revenue forgone by Rs 34,208 crore and hence states can further cut the oil prices. Maharashtra has gained the most, followed by Gujarat and Telangana,” said SBI’s Chief Economic Advisor Soumya Kanti Ghosh in the report.

Ghosh said that state finances had shown improvement since the Covid-19 pandemic, indicating they have the necessary wherewithal to adjust taxes if so required. This is also reflected in lower state borrowings, the report said.

Taking all these factors into consideration and if the cushion from oil excise is entirely adjusted such that states have no gain or loss from oil revenue over and above the budgetary estimates, Ghosh said that states on an average can still cut diesel price at least by Rs 2 per litre and petrol price by Rs 3 per litre each without impairing their VAT revenue from oil.

“Bigger states like Maharashtra, which have lower debt to GDP ratio, have significantly large fiscal space for lowering their tax on diesel and petrol by even up to Rs 5. The tax-GDP ratio of many states including Haryana, Kerala, Maharashtra, Rajasthan, Telangana, and Arunachal Pradesh is higher than 7 percent. We believe there is compelling reason for these states to adjust taxes on fuel,” Ghosh said.

In a bid to reduce inflationary pressure on households and businesses, the Centre slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre earlier this month. Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman have both asked states to consider cutting VAT to further reduce inflation.

SBI Research said that the ultimate solution to reduce the complexities in oil tax structure and bring down extreme volatility in oil revenues due to would be to bring it under the ambit of GST. However, if the two fuels are put under GST, the Centre will have to let go of Rs 20,000 crore input tax credit. Thus, a fair methodology would have to be developed for this, it said.

Investors took inspiration from China easing Covid curbs and the US Fed's minutes from the early May meeting released on Wednesday which drove speculation over a potential pause in interest rate hikes later this year after further monetary action in June and July, analysts said.

Here are the factors behind the market rising:

China relaxes Covid curbs: Asian equities traded higher after China eased Covid restrictions in Shanghai and Bejing and offered a slew of economic support measures. Shanghai will loosen Covid test requirements for people who enter public places and Beijing will loosen mobility curbs in several districts from Sunday after authorities said its outbreak is under control. Nikkei rose two percent, Hang Seng gained 1.9 percent, CSI 300 0.5 percent, Taiwan and Kospi were up 1.7 and 1.4 percent respectively.

US Fed minutes: Minutes from the Federal Reserve's latest monetary policy meeting showed policymakers unanimously felt the US economy was very strong even as they grappled with inflation without triggering a recession. The minutes also showed most of the committee's members saw further rate hikes would "likely be appropriate" at upcoming June and July meetings.

Early arrival of monsoon: The monsoon arrived earlier than usual in India raising hopes that output of crops like rice and oilseeds will get a boost after a brutal heat wave hit winter-sown wheat and prompted the nation to restrict exports. The southwest monsoon has set in over Kerala three days ahead of usual, the India Meteorological Department said on Sunday. Timely and normal rains are set to boost production outlook for monsoon-sown crops such as rice, soya beans and pulses and help curb soaring inflation.

India GDP: Investors also await GDP data for the March quarter which is due for release on May 31. Analysts have a wide range of growth forecasts from 2.7 to 4.5 per cent for the quarter. State Bank of India expects growth at 2.7 per cent for the quarter, rating agency Icra sees 3.5 per cent growth, and CRISIL 4.5 per cent.

US payroll data: Investors will be watching out for the latest non-farm payroll report that will be released on Friday. Employers are expected to have added 350,000 jobs in May, according to a consensus compiled by Refinitiv, which would be the weakest reading since January.