NEW DELHI: The Covid-19-induced contraction in economic activity is all set to drag state’s own source revenues by Rs 3 lakh crore for FY21, suggests the latest note by SBI Economic Research. The research house said total uncovered losses to states could be as high as Rs 3.1 lakh crore, and will require immediate fiscal support from the Centre.
States’ own revenues mainly comes from seven heads – state goods and services tax (SGST), state VAT (mainly petroleum products), state excise (mainly liquor), stamps and registration fees, tax on vehicle, tax and duty on electricity and own non-tax revenue.
The research house assumes loss of revenue in components like state VAT, excise, stamps and registration and says it will bring down June quarter state revenues to Rs 53,000 crore.
“Combining this estimate with the loss in state GST estimate for June quarter suggests major states are going to loss around Rs 1.2 lakh crore in the first quarter, translating into an annual loss of Rs 3 lakh crore,” Economic Research SBI said.
The research house estimates an additional Rs 1.5 lakh crore revenue loss from Centre. Adding to this could be the additional expenditure of states of Rs 1.7 lakh crore, which put the total loss at Rs 6.2 lakh crore for major states.
“The Centre has decided to accede to the request of states and increase their borrowing limits to give extra resources of Rs 4.28 lakh crore. Our research suggests only eight states are in position to fulfill the government’s conditions and avail 2 per cent of GSDP as extra borrowing. Hence, out of Rs 4.28 lakh crore, we believe only Rs 3.13 lakh crore, or 73 per cent of total available funds, might be actually borrowed by the state governments in FY21, keeping a uncovered gap of Rs 3.1 lakh crore for states at this point of time,” it said.
GSPD stands for gross state domestic product.
How can the gap be covered?
SBI Economic Research said the government can directly transfer the combined full amount of Rs 54,000 crore from State Disaster Response Fund (SDRF) and National Disaster Response Fund (NDRF).
SDRF is the primary fund available with state governments for responses to notified disasters. The central government contributes 75 per cent to SDRF allocation, which is released in two equal installments as per the recommendation of the Finance Commission.
The NDRF, on the other hand, supplements SDRF of a state, in case of a disaster of severe nature, provided adequate funds are not available in SDRF.
“An endeavor should be next made to transfer at least 50 per cent of the remaining Rs 2.5 lakh crore through further hike in WMA limits and supporting additional borrowing of states through open market operations (OMOs) by RBI and relaxing some of the conditional ties associated with borrowing. We must appreciate that states are the most vulnerable as they have limited sources of own tax revenue,” SBI Research said.
SBI Research suggests out of the 20 states, per capita income of 11 including Telangana, Haryana, Andhra Pradesh and Maharashtra is more than the national average. The jump in per capita debt is at least 0.7 times that of the Centre for states like Maharashtra, Kerala, Haryana, Tamil Nadu and Karnataka.