Kolkata, Aug 24: Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, on Monday said the pandemic has created a massive disruption in State finances.
While publishing State Bank of India: Ecowrap Report, he said the states are likely to witness a decline of Rs 3 lakh crores in Own Tax Revenue, adding, ” A very basic assumption of loss of an entire month’s revenue in components like State VAT, excise, stamps and registration will bring down the revenue for Q1 FY21 at around Rs 53,000 crore. ”
Dr Ghosh said combining this estimate with the loss in SGST estimate in Q1 shows that major states are going to loss around Rs 1.2 lakh crore in the first quarter itself, translating into an annual Rs 3 lakh crore loss. “We estimate an additional Rs 1.5 lakh crore revenue loss from Centre.
Taking into account, the additional expenditure of States of Rs 1.7 lakh crores, the total loss thus comes to around Rs 6.2 lakh crores for the major states,” he said.
Dr Ghosh said against this background, the Centre has decided to accede to the request of the States and increase borrowing limits of States giving extra resources of Rs 4.28 lakh crore.
“Our research suggests that only 8 states are in position to fulfill all the conditions of Government and can avail 2% of GSDP as extra borrowing. Hence out of Rs 4.28 lakh crore we believe that only Rs 3.13 lakh crore (73% of total available) might be actually borrowed by the State Governments in FY21, keeping a uncovered gap of Rs 3.1 lakh crores for states at this point of time,” he said.
“How this gap of at least Rs 3.1 lakh crores can be bridged? In fact, Central Government has recently released GST Compensation for FY20 at Rs 1.65 lakh crores.
To release the GST compensation for FY20, balance of cess amount collected during FY18 and FY19 was also utilized. So, the Centre does not have the cushion of past years’ funds, to even compensate for the shortfall in revenue owing to GST,” Dr Ghosh said.
The Bank’s Group Chief Economic Adviser said one way to bridge the gap is a direct transfer of the combined full amount of Rs 54,000 crores from State Disaster Response Fund (SDRMF) and National Disaster Response Fund (NDRF).
An endeavour should be next made to transfer at least 50% of the remaining Rs 2.5 lakh crores through further hike in WMA limits and supporting additional borrowing of states through Open Market Operations by RBI and relaxing some of the conditional ties associated with borrowing, he said.
“We must appreciate that the states are the most vulnerable as they have limited source of own tax revenue. The fund transfer to states will support also health, immediate payment to contractors for infrastructure work to reduce the stretched working capital cycle which will also have employment and demand boosting properties,” Dr Ghosh said.
“On a separate note, we also estimated the correlation coefficient between jump in per capita debt (PD) and per capita income (PCI) loss for each of the states by all the three methods, i.e. Pearson’s, Spearman’s Rank Correlation and Kendall’s tau. All the estimated results are significant and linearly correlated: R 0.86, r 0.93 & Tau 0.72,” he said. ”
Interestingly, there is no direct causality between both (PD and PCI) the variables, clearly indicating the presence of an independent factor that is pushing up both of these in unison. Our results show, out of 20 states there are 11 states like Telangana, Haryana, Andhra Pradesh and Maharashtra etc, PCI loss is more than the national average level,” Dr Ghosh said.
“The jump in PD is at least 0.7 times that of the Centre for states like Maharashtra, Kerala, Haryana, Karnataka, Tamil Nadu and Karnataka. For the record, budgeted nominal GDP is likely to be now even lower than FY19 itself,” he said.
“We are thus in unprecedented times and we emphasize an immediate fiscal support for states in some form or the other,” Dr Ghosh added. (UNI)
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