Resource-starved states cry foul, demand fresh funds and dues from Centre

They also ask permission to widen their fiscal deficit beyond 3% of their respective state GDPs

Indian states are dealing with huge fiscal constraints as they go all out to battle the Covid-19  crisis that has engulfed the nation. In order to alleviate their woes, they have urged the Centre to set up a separate fund from which money can be given to them, apart from seeking a widening of state fiscal deficit limit and payment of dues by the union government.

Their demands are particularly relevant as the lockdown due to the coronavirus has been extended till May 3, though there may be some relaxation April 20 onwards, with respect to economic activities in areas that are not hot spots and are less likely to turn into hot spots. 

According to a study conducted on 19 states by SBI Research, their fiscal deficit, projected at 2.06 per cent of their gross state domestic product, is set to widen for 2020-21. According to the study, states are grappling with the slowdown due to Covid-19, even as they continuously step up spending to contain the spread of the disease. 

The study, published on March 31, says the states have already committed an extra expenditure of Rs 30,000 crore. Also, when one looks at the estimated health expenditure as a percentage of estimated GSDP in FY21, it is not crossing even two per cent in any of these 19 states. The  recent outbreak of Covid-19 shows the cracks in the existing health infrastructure. 

A recent study using the data of National Health Profile-2019 shows that there are 713,986 government hospital beds available in India. This amounts to 0.55 beds per 1,000 population. 

The same report shows that among the various communicable diseases reported by the states and union territories during 2018, Acute Respiratory Infection accounts for 69.47 per cent of the distribution of morbidity reported in communicable diseases. 

Thus a massive chunk of the population is vulnerable and health expenditure has been inadequate to handle such a situation. This means states have to increase their health expenditure, supported by the Centre. 

Even if we take the 2018-19 GSDP data and assume that states spend one per cent extra of this GSDP, it will entail an additional expenditure of Rs 1.6 trillion.  

And then, a slowing down economy would dent revenues. Some of the agencies predict the country's gross domestic economy to contract by 0.5-1 per cent in 2020.

All these could push the state fiscal deficit from budgeted 2.06 per cent to 3.5 per cent of GSDP, unless backed up by capital expenditure cuts, according to the study. 

Soumya Kanti Ghosh, author of  the study and chief policy advisor SBI group, said the 3.5 per cent deficit does not include off-budget expenditure. 

What the states want from the Centre

As such, the states are demanding that they be allowed to go for market borrowings even if the fiscal deficit is widened beyond three per cent.  

For instance, Telangana chief minister K Chandrasekhara Rao urged prime minister Narendra Modi during a recent videoconference meeting, to let states take the fiscal deficit up to five per cent of their respective GSDPs. 

West Bengal Chief Minister Mamata Banerjee wanted a national economic relief package of Rs 10 trillion for disbursal to the states.

She said funds from this could be used both, to fight the pandemic and support states’ economies. 

Last month, Union Finance Minister Nirmala Sitharaman had announced a Rs 1.70 trillion central package. However, Banerjee contended it was only one  per cent of national GDP and the Centre needed to spend more.

“Globally we are seeing Japan, the US, and others spending much more in proportion to their GDP. India needs to do the same thing,” she said.

So far as her state was concerned, Banerjee pressed for a Rs 25,000-crore special package. 

She also asked the Centre to clear GST dues of Rs 2,393 crore for the last four months of FY20, apart from pending dues of Rs 36,000 crore and funds of Rs 11,219 crore for the state.

“There is no earning but only burning (expenses) now,” she said.

Additionally, she sought special relief measures like a loan-repayment moratorium.

The Centre has cleared the GST dues to states till November only due to the economuc slowdown and lowering of GST rates on the compensation cess. 

To bridge the shortfall, Sitharaman had said in her Budget speech that it was decided to transfer the GST Compensation Fund balances due, out of collection of the years 2016-17 and 2017-18, in two instalments.

Recently, the department of economic affairs has approved transfer of Rs 20,000 crore for this purpose. 

Maharashtra deputy chief minister Ajit Pawar sought a Rs 25,000 crore package from the Centre.

He said the Centre should clear dues of Rs 16,654 crore under various heads. 

Rao demanded that the Centre announce a big economic package for the states. For this, he suggested the RBI do deficit financing by way of quantitative easing or printing currency notes to the extent of 5 per cent of GDP.

Citing the revenue loss, the chief minister asked the Union government to defer loan instalments of states by at least six weeks.

Andhra Pradesh chief minister Y S Jagan Mohan Reddy said migrant workers, daily wage labourers, and horticulture and aqua farmers had suffered the most.

He told the prime minister only 7,250 of the 103,986 industrial units in his state were running, and urged Modi to announce measures to restart the wheels of the economy while enforcing steps to contain the spread of the pandemic.

Kerala chief minister Pinarayi Vijayan sought financial help for labours in the unorganised sector for at least three months. "It will help to improve liquidity in the economy," he said.

Vijayan said Employees' State Insurance Corporation (ESIC) has the powers to pay salaries under certain circumstances, and requested the Centre to include Covid-19 in such circumstances. 

He said Kerala may require 645,000 tonnes of rice and 54,000 tonnes of wheat in the next three months and demanded that the grains be supplied without hindrance. He said the Railways should operate more goods trains to Kerala to bring food grains and other items. 

Tamil Nadu Chief Minister K Palaniswami asked the Centre to sanction an ad hoc grant of Rs 1,000 crore from the National Disaster Relief Fund (NDRF) to the state for procuring medical items, and called for a smooth supply of essentials through railways and inter-state movements of goods.

Palaniswami urged the prime minister to announce a special package for the farm sector and asked for additional funding and allotment of essential items from the Centre to support unorganised-sector workers and agricultural labourers, among others.

Puducherry Chief Minister V Narayanasamy sought a package of Rs 300 crore.

Besides chief ministers, state finance ministers also raised the issue of resource crunch. For instance, Punjab finance minister Manpreet Badal said, "I need at least Rs 150 crore to fight this pandemic on the health front."

He asked the Centre to increase the state's limit under the Fiscal Responsibility and Budget Management (FRBM) Act from 3 per cent to 4-5 per cent. 

In fact, Kerala finance minister Thomas Isaac said his state along with others, is planning to drag the Centre to the Supreme Court for not paying GST dues worth Rs 40,000 crore and Rs 40,000 crore of integrated goods and services tax.

Accusing the Centre of being stingy, he said, "The relief offered is disappointing. While the Centre has locked down the nation and a majority of people have lost jobs, it has offered them a meagre Rs 500 a month. Of course, there is free additional ration, but that is just not sufficient if you look at the kind of relief being given elsewhere. The UK is paying 80 per cent salary 

to the self-employed and workers."

Delhi deputy chief minister and finance minister Manish Sisodia demanded a disaster fund from the Centre to fight the coronavirus outbreak in Delhi.

The Delhi government, in pursuance of the Centre's direction, is providing food to around 650,000 people twice a day, he said. Also, it has been providing rations to 7,300,000 ration cardholders and an additional 10 lakh people who do not have these cards, he added.

Meanwhile, the Centre is preparing a second package for the economy and it is expected that it would partly meet the demands raised by the states and also the micro, small and medium enterprises (MSMEs).