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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.

India is expected to face a wider coal shortage during the quarter ending September over expectations of higher power demand, an internal power ministry presentation seen by Reuters showed, worsening risks of widespread power outages.

The energy-hungry nation expects local coal supply to fall 42.5 million tonnes short of demand in the September quarter, 15% higher than previously projected, due to higher growth in power demand and lower output from some mines.

The grim forecast shows the extent of the fuel shortage in India, at a time when annual power demand is seen growing at the fastest rate in at least 38 years and global coal prices are trading at near-record levels due to a supply crunch resulting from the Russia-Ukraine crisis.

India has stepped up pressure on utilities to increase imports in recent days, warning of cuts to supply of domestically mined coal if power plants do not build up coal inventories through imports.

However, one of the slides in the presentation showed that most states had yet to award contracts to import coal and that Indian utilities would run out of coal by July if no coal was imported.

Only one state had awarded a contract to import coal as of end-April, a power ministry import status report reviewed by Reuters showed.

India expects domestic coal supply of 154.7 million tonnes, 42.5 million tonnes short of the projected requirement of 197.3 million tonnes in the September quarter, the presentation showed. It previously expected a shortage of 37 million tonnes.

The presentation was made on Friday in a virtual meeting in which the federal coal and power ministers were present, with top energy officials from the federal government and the states in attendance, according to two government officials familiar with the matter.

The federal coal and power ministries did not immediately respond to a request seeking comment. Details on the presentation have not been previously reported.

Coal inventories at power plants have declined by about 13% since April, which translates to eight days of coal requirement, the lowest level at this time of the year in at least nine years. The higher coal demand could also stifle efforts to build power plant inventories.

India now expects the demand for coal from utilities to be 784.6 million tonnes for the year ending March 2023, the presentation showed, 3.3% higher than projected earlier.

The projected annual coal shortage is now 49.3 million tonnes, nearly three times the 17.7 million tonnes projected earlier, the presentation showed.

India reconciled its coal demand projections after higher-than-expected power demand growth in April, when electricity use hit a record high due to soaring temperatures.

Many states on Friday called for the federal government-run Coal India to import coal in bulk and distribute it among the states, the officials said.

States cited high global prices and supply challenges to seek aggregated imports, the officials said, adding that the coal minister had told states the demand would be considered.

Higher imports could put further pressure on state-government-owned power distribution companies, which are already saddled with debt and owe billions of dollars to generators as they have historically absorbed higher input costs to keep tariffs steady.

Coal India did not immediately respond to a request seeking comment. The world's largest miner has not imported coal in the recent years.

Billionaire Sam Bankman-Fried, who’s also the firm’s co-founder, said on Friday that recent rounds of fundraising by FTX and its US entity -- totaling more than $2 billion -- could be used to bankroll the moves.

“FTX is a profitable company,” he said in an interview. “You can look at the amount that we’ve raised over the last year or two -- it’s a few billion dollars. That gives maybe a sense of where we are in terms of cash that was explicitly viewed from a potential acquisition angle.”

Bankman-Fried, 30, has emerged as one of the most recognizable people in crypto. FTX crashed into the mainstream with Super Bowl ads, naming rights to the Miami Heat’s home court, and its logo on Major League Baseball umpire uniforms. Most recently, FTX has been making waves in traditional financial circles with a plan that could cut out brokerages from clearing some derivatives.

FTX has no shortage of funds in its war chest for deal-making. In January, the exchange raised $400 million at a $32 billion valuation, bringing the total amount raised in the prior half a year to close to $2 billion. At the same time, its US entity separately raised $400 million.

India’s economy maintained its momentum in April as a wider reopening from the pandemic kept rising prices from depressing demand for the time being.

Activity in the services sector as well as factories gained last month, while the three-month weighted averages of monthly changes in indicators from exports to credit demand suggested enduring strength. That helped keep the needle on a dial measuring so-called ‘Animal Spirits’ steady at 5 for the 10th straight month.

Reserve Bank of India Governor Shaktikanta Das, who is due to lead a meeting of the policy panel next month, has signaled more tightening to keep inflation from denting household spending power.

Below are details of the dashboard. (For an alternative gauge of growth trends, follow Bloomberg Economics’ monthly GDP tracker -- a weighted index of 11 indicators.)

Business Activity

Purchasing managers’ surveys showed services sector activity in April grew at this year’s strongest pace, while manufacturing also showed expansion. That helped the S&P Global India Composite PMI expand at the fastest pace in five months to 57.6 -- far above the 50 threshold that separates growth from contraction.

The activity backed by stronger new orders was accompanied by a bump in output prices as producers started passing on high raw material costs to consumers. That’s a risk to headline inflation, which climbed to an eight-year high in April.

Exports grew at this year’s fastest pace, rising 30.7% in April from a year ago to $40.2 billion, although in value terms that was lower than the $42.2 billion seen a month prior. Imports also rose 31% to $60.3 billion as high commodities prices pushed up the bill for everything from crude to edible oils. That widened the trade deficit to $20.1 billion from $18.5 billion in March.

The automobile sector continued to be weighed down by a global supply crunch, with passenger vehicle sales falling 10% in April from a month ago. The auto industry sees rate increases dampening consumer sentiment.

Other indicators of consumer activity were encouraging though, with bank credit growing 11.1% toward the end of last month from 9.6% in end-March. Liquidity conditions continued to remain in surplus.

Factory output growth picked up, rising 1.9% in March from 1.5% in the previous month, aided by electricity and mining. The output growth of eight infrastructure industries slowed to 4.3% from 6% in February as coal and crude oil output fell from a year ago. Both the reports are published with a one-month lag.

India does not plan to curb rice exports as the world's biggest exporter of the staple has sufficient stocks and local rates are lower than state-set support prices, trade and government sources said.

India banned wheat exports on May 14, just days after New Delhi forecast record shipments of 10 million tonnes this year, as a heat wave hit output and sent domestic prices to record highs.

"We have more than sufficient stocks of rice and there is no concern at all in terms of either prices or availability for exports and domestic requirements," said a senior government official involved in the decision making.

"At this stage, there is no consideration at all to prohibit rice exports," said the source, who didn't wish to be named in line with official rules.

Rice exports from India, also the world's second biggest consumer of the grain, jumped to a record 21.2 million tonnes in the fiscal year to March 2022 from 17.8 million tonnes the previous year.

Rice prices are falling, even as exports rise, as India has massive stocks and local purchases by the Food Corporation of India (FCI) - the state stockpiler - are increasing, said B.V. Krishna Rao, president of the All India Rice Exporters Association.

Milled and rice paddy stocks at FCI totalled 66.22 million tonnes against a target of 13.58 million tonnes.

"There is no need to put any restriction on rice exports," Rao said. "Wheat output and prices were affected due to the war in Ukraine, but ... the Black Sea region is neither a major producer nor consumer of rice."

India's rice export prices extended losses this week to touch $350 to $354 a tonne, the lowest in more than five years.

In the crop year to June 2022, India's rice output jumped to a record 129.66 million tonnes from 121.1 million tonnes the previous year.

Higher output has forced FCI to buy more rice from domestic farmers, taking a record 80.4 million tonnes of rice paddy from growers so far this year against 77 million tonnes over the same period last year.

"FCI's procurement is going up, and that is an indication that there's no shortage, so there is no logic for any ban on rice exports," Rao said.

A public welfare budget dedicated to the overall development of Uttar Pradesh will be presented in the assembly on Thursday, Chief Minister Yogi Adityanath said. Before being tabled in the House, the budget was passed in a cabinet meeting chaired by the chief minister at his official residence here in the morning.

"A public welfare budget dedicated to the overall development of Uttar Pradesh will be presented in the House today. With inspiration from the respected prime minister, the double-engine government of the BJP is working relentlessly to make Uttar Pradesh the 'growth engine' of the country," Adityanath said in a tweet in Hindi.

State Finance Minister Suresh Kumar Khanna said the budget would be for the welfare of the people and according to the BJP's 'Sankalp Patra' (election manifesto).

US stock futures edged up on May 25 ahead of the much-awaited release of the minutes from the recent Federal Reserve meeting, which market observers will closely track for clues regarding the speed and extent of future interest hikes.

The Federal Reserve, in its meeting early in May, hinted at a more aggressive stance by hiking the cost of borrowing. Investors expect a series of 50-basis-point rate hikes over the next several months. One basis point is one-hundredth of a percentage point.

Ahead of the release, Wall Street futures inched up after the Nasdaq Composite had dropped 2.35 percent and the S&P 500 lost 0.8 percent on May 24.

The US dollar index, which measures the currency against six major rivals, rebounded 0.16 percent to 101.92, a level not seen since April 26.

Bullion dropped from near a fortnight-high, with the greenback rising from the lowest in almost a month's period.

During the May 4 meeting, the Fed raised its target for the overnight bank-to-bank lending rate by half a percentage point, to a range of 0.75-1 percent, and Chairman Jerome Powell suggested that similar-sized measures would be undertaken in June and July to tame the worst inflation in the 40 years.

Minutes are expected to highlight a consensus over the view that the Fed funds rate should be neutral by 2022-end. Atlanta Fed President Raphael Bostic has publicly said he supports an expeditious return of monetary policy to a more "neutral stance" to bring down inflation that is currently running at more than three times the Fed's 2 percent target.

Bostic also said on May 23 that he would like to pause further rate hikes at the Fed's September meeting to allow time to assess the impact of tighter policy on the economy and inflation. The publication of minutes from the Fed's May meeting could show how widely held that view is, and what other options are under consideration.