E-Paper
Covid-19: States reel from revenue loss, salary delays likely
Covid-19: 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 announced by Prime Minister Narendra Modi is extended.
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 (Covid-19).
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 announced by Prime Minister Narendra Modi is extended, the officials cited above added.
Irrespective of these losses, Telangana and Uttar Pradesh suggested on Monday that the lockdown continue beyond April 15, and Madhya Pradesh and Rajasthan indicated on Tuesday 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 period, demand has fallen drastically because only emergency services vehicles are allowed ti be on the roads. Liquor shops have been shut since the lockdown was imposed on March 25. Tourism, a third major source of revenue for some states -- particularly Rajasthan, Kerala and Uttarakhand -- is also in the red because most hotels and monuments are closed.
Officials across several states said that the Covid-19 pandemic comes at the time when the revenues were already 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 Goods and Sales Tax (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 Rs 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 Rs 1.08 lakh crore for the 2019-20 fiscal.
CURBS AND CUTS
Once the Covid-19 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 somehow paid March salaries. If the present situation continues, paying salaries for month of April and May will be difficult,” said a senior official of Andhra Pradesh government who asked not to be named.
According to a document prepared by Punjab’s finance department on the fiscal impact of the lockdown, the state revenue shortfall in the first quarter of 2020-21 financial year is expected to be of Rs 10,309 crore (2.46% of the Rs 418,868 crore GSDP) if the lockdown ends on April 15.
The Punjab government has, meanwhile, already indicated that the curfew imposed in some areas will be extended. “In case the national lockdown is extended, the financial impact will be severe. We are taking a hit of Rs 120 crore daily in our tax and non-tax revenues,” said a finance department official who asked not to be named.
States that rely heavily on industry -- including Andhra Pradesh, Telangana, Maharashtra and Tamil Nadu -- are taking a bigger hit.
Andhra Pradesh’s principal secretary (finance) SS Rawat told HT that he expected the March revenue to come down by at least half as compared to the year-on-year (YoY) revenue for March. Telangana chief minister K Chandrashekar Rao on Monday said in a press briefing? the state was losing Rs 400 crore a day. “In the first six days of April, we got just Rs 6 crore revenue as against the expected revenue of little over Rs 2,400 crore,” he said.
The Maharashtra government has estimated a loss of Rs 25,000 crore, or about 50% YoY in March. In April, finance department officials expect to collect revenue of Rs 4,500 crore as against the normal Rs 20,000 crore. “We are hoping things will improve by May onwards,’’ said state finance secretary (expenditure) Rajiv Mittal.
An Uttar Pradesh 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, one of the biggest revenue sources for the states; Uttarkhand is estimated a loss of Rs 980 crore in March, which is 0.3% of the GSDP, said the state’s finance secretary Amit Singh Negi; while Jharkhand’s additional chief secretary (planning and finance), KK Khandelwal said the revenue March has dipped by abound 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 chief minister Ashok Gehlot wrote twice to Prime Minister Narendra Modi during the lockdown period (March 30 and April 7) asking for one-time grant of Rs 1 lakh crore to all the states to implement measures to overcome the Covid-19 challenge.
Bihar chief minister 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, and to let states to borrow more money from the market to meet expenditure such as salaries, pensions and interest payments in the April-June period.
Other state such as Chhattisgarh and West Bengal have asked for an immediate release of Mahatma Gandhi Rural Employment Guarantee Scheme (MNREGS) funds, and allowing the payment of an unemployment allowance to already enrolled workers. Maharashtra chief minister Uddhav Thackeray has formed a task force to suggest ways to reactivate the economic.
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.
Telangana CM KCR summed up the worries of most state governments when he said that “very tough decisions” will have to be taken in the coming days if the Central does not come.
One hope the states are holding out for is that the first installment of the devolution of central funds is expected by April 20. One fourth of Rs 2,00,447 crore is expected to be disbursed in April. “The money could come handy in meeting the day-to-day financial needs of the state governments, for now,” said a Rajasthan government official.
