States Lead The Fight Against Rising Economic Cost Of Coronavirus

Indian states are rolling out steps to counter the economic impact of lockdowns announced to slow the spread of the coronavirus. So far, at least six states have announced packages, relying on a combination of income transfers and food rations to provide relief to citizens whose earnings are at risk from the containment measures.

As of March 23, 415 confirmed cases of coronavirus have been detected in India, according to data from the Indian Council of Medical Research. In response, 75 districts have been put into lockdown by the central government until at least March 31, 2020. In addition, a number of states have announced severe restrictions on mobility and non-emergency businesses.

As such, the economic cost of fighting a spread of the virus is now rising.

Globally, countries have pledged nearly $2 trillion to as fiscal support to fight the virus, according to Bloomberg. Prime Minister Narendra Modi in an address on Thursday announced that an economic task force would be constituted under Finance Minister Nirmala Sitharaman to consider steps needed to counter the income loss being faced by businesses and citizens.

In the meantime, state governments have stepped in with a mix of advance pension payments, minimum income transfers, free meals and ration, among other measures. Measures announced by states so far are detailed below.

Spending Relief: States Vs Centre

States taking the initiative is exactly what we want at this juncture, said Indira Rajaraman, member of the Thirteenth Finance Commission and Reserve Bank of India chair at National Institute of Public Finance and Policy.

There can be no national uniformity on what is needed, said Rajaraman, adding that the appropriate interventions will vary widely based on population density.

The fiscal architecture, as it currently stands, does enable states to fight the pandemic, up to a point, said Rajaraman, adding that funds are available through the States' Disaster Relief Fund for fiscal cover. While data on claims made so far is not available in the public domain, once the state relief funds are exhausted, they can also apply for funds from the National Disaster Relief Fund, she explained.

States which respond immediately are less likely to need nationally funded relief later, Rajaraman said.

The centre will eventually need to step in, said Govinda Rao, member of the Fourteenth Finance Commission.

So far, states with more exposure to the rest of the world are worse off. But as all states begin to see an impact, any stimulus will have to cater to the country at large, Rao said.

The fiscal deficit of states such as Kerala, Uttar Pradesh, Maharashtra, etc, is already close to breaching the 3 percent target mandated by the FRBM Act. State borrowings are limited by the centre and, as a result, the extent of stimulus they can give is also likely to remain limited, Rao said.

“Substantial stimulus will have to come from the centre,” Rao added.