States reel from revenue loss, salary delays likely
STATES THAT RELY HEAVILY ON INDUSTRY ARE WITNESSING A BIGGER DECLINE IN REVENUE
CHANDIGARH/LUCKNOW/MUMBAI/ HYDERABAD: Most Indian states witnessed a decline in revenue of between 30% to 60% for March, and are estimating a bigger dip in April, multiple state government officials said, even as some states want an extension of the national lockdown beyond April 15 to save lives by containing the spread of the coronavirus disease.
The fall in revenue may lead to a delay in disbursement of salaries to the state government employees, and payments to external borrowers including government institutions, if the 21-day lockdown is extended, the officials cited above added.
Telangana, Uttar Pradesh, Madhya Pradesh and Rajasthan have indicated that they would be in favour of an extension, if required. Two major sources of income for the states are value added tax (VAT) on petroleum products and excise duty on liquor. While fuel pumps are open through the lockdown, demand has fallen because only emergency services vehicles are allowed on the roads. Liquor shops have been shut since March 25. Tourism, a third major source of revenue for some states -- particularly Rajasthan, Kerala and Uttarkhand -- is also in the red because most hotels and monuments are closed.
Officials across several states said that the pandemic comes at the time when the revenues were down. In their budget documents for 2020-21, most states had recorded a 7% to 22% shortfall in annual revenue on account of lower collection of GST, and falling receipts due to the economic slowdown, according to a discussion paper prepared by PRS Legislative Research.
Kerala reported 22% less GST revenue in 2019-20 than the previous fiscal, Odisha 10%, and West Bengal 7%. The paper also said that the GST compensation shortfall for states in 2019-20 was expected to be around ~1.01 lakh crore; and the debt burden of about 10 states -- including Chhattisgarh, Uttar Pradesh, Andhra Pradesh, Madhya Pradesh and Rajasthan -- increased because of the farm loan waiver, which would reach a cumulative ~1.08 lakh crore for the 2019-20 fiscal.
CURBS AND CUTS
Once the pandemic struck, leading to curbs and eventually a lockdown, the stress on state revenues became visible within a few days, with Maharashtra, Telangana and Andhra Pradesh announcing cuts in government salaries between 10% and 60%. “We paid March salaries. If the situation continues, paying salaries for April and May will be difficult,” said a senior official of Andhra Pradesh government.
Punjab’s revenue shortfall in the first quarter of 2020-21 financial year is expected to be of ~10,309 crore if the lockdown ends on April 15.
The Punjab government has, meanwhile, indicated that the curfew imposed in some areas will be extended. “We are taking a hit of ~120 crore daily in our tax and non-tax revenues,” said a finance department official.
Telangana chief minister K Chandrashekar Rao on Monday said in a press briefing the state was losing ~400 crore a day. “In the first six days of April, we got just ~6 crore revenue as against the expected revenue of little over ~2,400 crore,” he said.
The Maharashtra government has estimated a loss of ~25,000 crore, or about 50% YoY in March.
A UP finance department official estimated the revenue shortfall of 15-20 % for March. “We managed to pay March salaries. But will have to devise ways to mobilise funds for coming weeks,” said a senior official on condition of anonymity.
Madhya Pradesh finance department has estimated revenue loss of 25% on taxes from petroleum fuels; Uttarkhand has estimated a loss of ~Rs 980 crore in March, said the state’s finance secretary Amit Singh Negi; while Jharkhand’s additional chief secretary (planning and finance), KK Khandelwal said March revenue has dipped by around 60%.
CALL FOR HELP
Most states have announced austerity measures and banned spending on new projects for the next three months, and some are diverting funds from non-essential departments to health care. But almost all state governments have sent SOS messages to the Centre seeking help.
Rajasthan CM Ashok Gehlot wrote twice to PM Modi during lockdown asking for one-time grant of ~1 lakh crore to all the states to implement measures to overcome the Covid-19 challenge.
Bihar CM Nitish Kumar and Punjab finance minister Manpreet Singh Badal said they want the Centre to allow the fiscal deficit to increase from the present 3% of the state GDP to 4% for the next financial year.
Haryana’s deputy CM Dushyant Chautala and UP finance minister Suresh Khanna, however, stuck optimistic notes, saying this was a temporary phase because the economic impact of the Covid-19 was being felt worldwide and their states could not be isolated from it.
One hope the states are holding out for is that the first instalment of the devolution of central funds is expected by April 20. One fourth of ~2,00,447 crore is expected to be disbursed in April.