The Covid-19 pandemic and the subsequent lockdown has severely hit the economy, with 21 major states losing Rs 971 billion in revenue in April, the latest estimate by credit agency India Ratings & Research shows.
Maharashtra, the worst hit state due to coronavirus, may have witnessed the maximum revenue loss at Rs 132 billion, followed by Uttar Pradesh (Rs 111.20 bn), Tamil Nadu (Rs 84.12 bn), Karnataka (Rs 71.17 bn) and Gujarat (Rs 67.47 bn).
“Both Union and state governments are struggling due to the dried-up cash inflow, but the problems of states are more precarious because of the actual battle against Covid-19 and the associated expenditure being incurred by them,” said Dr Sunil Kumar Sinha, principal economist and director, public finance, at India Ratings & Research.
“Under current circumstances, there is a fair amount of uncertainty regarding the quantum and timings of state governments’ receivables from the Union government. Moreover, their own sources of revenue have fallen to abysmally low levels. This is pushing the state governments to adopt austerity measures and combine it with exploring new/more ways of generating revenues,” Sinha added.
According to the estimate, the lockdown will adversely impact the revenue performance of all the states, especially those with a higher share of their own revenue. Some states have allowed liquor sales with a higher excise duty along with an increase in Value Added Tax (VAT) on petrol and diesel.
States such as Gujarat, Telangana, Haryana, Karnataka, Tamil Nadu, Kerala, Maharashtra and Goa have 65-76 per cent of revenue from their own sources.
States have seven major sources of revenue. These are state goods and services tax (SGST), state VAT (on petroleum products), state excise (primarily on liquor), stamps and registration fees, taxes on vehicles, taxes and duties on electricity and a state’s non-tax revenue. The revised estimate of states’ Budget data shows that all the major states have hardly received any revenue from these sources.
States have received only a small percentage of revenue from essential services during lockdown under SGST (40 per cent of what they used to get earlier), state VAT (30 per cent), taxes and duties on electricity (10 per cent due to the closure of industries, factories and most commercial establishments) and non-tax revenue (10 per cent). With such low collections, states are staring at a massive revenue loss in absolute numbers for April, 2020.