Major States May Lose Rs 97,100 Crore Revenue In April, Says India Ratings
Even if the lockdown is lifted by mid-May, economic activity is unlikely to become normal until Q2FY21, the report said.
India Ratings and Research estimates a collective revenue loss of around Rs 97,100 crore for 21 major states in April alone as a national lockdown following the Covid-19 outbreak had stalled economic activity in the country.
“The disruption to production, breakdown of supply chains and trade channels and total wash out of activities in the aviation, tourism, hotels and hospitality sectors have taken place with such a speed and scale that even if the lockdown is lifted by mid-May, the economic activity is unlikely to become normal until the second quarter of financial year 2020-21,” according to the rating agency’s latest report.
Although the lockdown has hurt revenues of both the central and state governments, India Ratings said that the actual battle against Covid-19 and the associated expenditure is being incurred by states.
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In addition to uncertainty regarding the quantum and timings of the state governments’ receivables from the Union government, their own sources of revenue have fallen to abysmally low levels, the report said.
Despite the lockdown, nearly 40 percent of the economy was functional, as economic activities defined as “essentials” were allowed to remain operational, according to India Ratings’ estimates. This meant that some amount of revenue did accrue to the state governments under various heads like state GST, value added tax, tax and duty on electricity and non-tax revenue. Even after making these adjustments, states may face a significant revenue loss in April, the rating agency said.
“Things may improve somewhat in May 2020 due to the easing of some restrictions – allowing the sale of liquor being the most prominent one,” India Ratings said, especially with a number of states hiking the excise duty on alcohol. Some states have also raised VAT on petrol and diesel.
India Ratings expects states like Goa, Gujarat, Haryana, Tamil Nadu, Telangana, Karnataka, Maharashtra and Kerala to be the worst hit, as these states generate around 65-76 percent of their revenues.