India set to take a Rs 40,000 crore blow on account of oil revenue loss

India’s 40-day lockdown to contain the spread of the coronavirus is curbing oil demand and reducing the government’s tax income from the petroleum industry, which contributes about a fifth of budget revenue.

Consumption of fuel products probably declined at least 80% in April, which would lead to a revenue loss of as much as Rs 40,000 crore ($5.3 billion), according to estimates from Madan Sabnavis, an economist at Care Ratings Ltd.

That means the lockdown has cost the government about $175 million a day in lost oil revenue this month.

Demand in the world’s third-biggest consumer of fuel plummeted this month as the government imposed a lockdown on 1.3 billion people, restricting their mobility and shutting down most businesses. At the same time, oil prices have collapsed, further reducing tax receipts from fuel products and crude production from local fields.

“Low crude oil prices is a worry for the government as tax revenue will get affected,” said Sabnavis. It will also make it difficult for authorities to sell oil refiner Bharat Petroleum Corp., as they had planned to do this year as part of an ambitious asset sale program, he said.

In India, taxes on key petroleum fuels such as petrol and diesel make up more than 50% of pump prices. The sector, dominated primarily by state-run companies such as Indian Oil Corp. and Oil and Natural Gas Corp., contributed Rs 3.8 lakh crore to the federal exchequer and states through taxes and dividends during April-December last year. With oil producers facing shrinking income, their ability to pay higher dividends to the government will be affected.

Citigroup Inc. estimates the government’s fiscal deficit will widen to 8% of gross domestic product this year, compared with a budgeted 3.5%.