Covid-19 impact: States stare at Rs 6-trillion fiscal hole, says SBI report

Might have to cut capex by 40%, says report

States might lose Rs 3 trillion in their own revenues this year thanks to the pandemic and the slow recovery of economic activity, State Bank of India said in a report. 

Add to that the share of the Centre’s tax revenues and additional expenditure lost, and states could be staring at a loss of Rs 6.2 trillion in financial year 2020-21 (FY21), the report said.

“Combining the loss in value-added tax, stamps duty and other sources with the loss in state goods and services tax (SGST), major states are going to lose Rs 1.2 trillion in the June quarter, and the annualised loss in own revenue could be close to Rs 3 trillion,” said Soumya Kanti Ghosh, chief economist at the bank.

States are borrowing more this year — 56 per cent more than a year ago — to balance revenue losses. However, unless the Centre transfers GST compensation cess and funds allocated for disaster response, states might have to cut capital expenditure by 40 per cent of the budgeted amount of Rs 7.5 trillion, the report said.

 

 

To address the revenue loss, the Centre has increased states’ borrowing limits, which potentially opens up the valve for extra resources of about Rs 4.28 trillion. 

But this relaxation comes on meeting four conditions, one of them being the implementation of One Nation One Ration card.

According to SBI research, only eight states will be able to fulfil all the criteria, the report said.

One critical source of funds for state governments is the transfer of GST compensation cess from the central government. But the Centre completed the cess transfer of FY20 only recently, and has contended that it is in no position to compensate for GST losses for this financial year.

The report extrapolated the revenue losses in the June quarter to the full financial year. It pegged the GST loss at Rs 65,000 crore, and loss on account of VAT, state excise, and stamps duty at Rs 53,000 crore, totalling Rs 1.18 trillion. Extrapolating it to FY21, the annual loss could reach a massive Rs 3 trillion.