With falling revenue, Maharashtra facing its worst economic & health crisis

On March 6, Maharashtra's Deputy Chief Minister Ajit Pawar presented the Maha Vikas Aghadi government’s maiden Budget, rolling out schemes for farmers and employment generation. The mood in the alliance was buoyant as it had completed 100 days. A day later Chief Minister Uddhav Thackeray visited Ayodhya to mark the occasion. By then the state had not reported any Covid-19 case — the first positive case was confirmed in Pune on March 9.

Two months later, the story is different. As Covid-19 cases surge and businesses remain shut, the state is facing its worst economic and health crisis. The Budget proposals have gone awry.
 

In its FY21 Budget estimates, the state government had projected 12 per cent growth in revenues (including tax, non-tax and state’s share in central revenues) to Rs 3.47 trillion, with the bulk of it coming from state goods and service tax. The government estimated around Rs 30,000 crore of monthly revenues, but with the state under two months of lockdown, its receipts have shrunk.

“Revenues dropped 60 per cent in April and 90 per cent in May. We will have to live with the shortfall,” a senior official said. The government has already announced a 33 per cent cut in planned expenditure for this year and has staggered salary payment; 50 per cent of April salary has been paid. Class IV employees have been paid in full.

“All bets are off,” former Chief Minister and Congress legislator Prithviraj Chavan remarked. The state will have to reset its priorities as it could be left with little revenue for development after meeting its salaries and loan obligations, he said.

 

“The revenue loss incurred by states should be covered by the Centre in the form of grants. There should be direct support for agriculture and micro industries,” Chavan said, adding the Centre should borrow or tap its reserves to support states.

The Maharashtra government in April had set up a committee to suggest measures for economic revival. Demands are also being made by ministers and political leaders for central grants of up to Rs  1 trillion to overcome the crisis. “We will have to increase our borrowings,” a state bureaucrat said. The state government has a debt of Rs 4.7 trillion. It had planned to borrow over Rs 81,000 crore this fiscal year to meet budgeted expenses.

“Maharashtra’s fiscal deficit to GSDP is estimated at 1.69 per cent — well within the 14th Finance Commission recommendations of a 3 per cent cap. So it has sufficient cushion to borrow up to 3.5 per cent as allowed by the Centre. However, the Centre needs to define the borrowing guidelines. Linking borrowing to reforms is a good idea but states may not be able to implement the reforms in the next nine months as they will be busy fighting the Covid-19 crisis,” said Madan Sabnavis, chief economist of CARE Ratings.

While there is no clear road map on lifting the lockdown in the state, the government has begun easing restrictions in non-red zones. Over 50,000 manufacturing units have resumed operations.

The state is also rolling out the red carpet for new investors, promising single comprehensive permit to commence construction. “If new industrial investors cannot afford to purchase land now, we will rent it to them. We will ensure basic infrastructure and not impose stringent conditions. We will launch a new phase of industrialisation,” Thackeray tweeted earlier in the week.

 

But, the economic scenario remains gloomy. Dharmakirti Joshi, chief economist of Crisil Research, said: “Maharashtra, Tamil Nadu, and Gujarat, being most dependent on the output from industry and services, are more vulnerable to output losses as they face lockdown restrictions.”

States with a higher share of agriculture in gross state domestic product, such as Andhra Pradesh, Madhya Pradesh, and Punjab, are less vulnerable to the output impact of the lockdown as agriculture is expected to perform well," said Dharmakirti Joshi, chief economist of Crisil Research.