Coronavirus crisis | These 4 states may struggle to make payments if lockdown continues

Based on FY21 budgets, four states – Himachal Pradesh, Jharkhand, Rajasthan and Uttar Pradesh - are likely to face pressure in the near run and may find it difficult to make payments, if the lockdown continues beyond May 3.  This is despite any policy support they may get.

The analysis was done by India Ratings and Research and covered the monthly expenditure of 18 states.

It was based on the liquidity available with the state governments in the form of Consolidated Sinking Fund (CSF), Guarantee Redemption Fund (GRF), Auction Treasury Bills (ATBs) and government securities, FY21 market borrowings and the increased ways and means advances (WMA) limits.

The report found that significant revenue from states' own sources has dried up and if the lockdown continues, many more states would find it difficult to make payments.

The regulator provides a special drawing facility to state governments against the collateral of CSF, GRF, ATBs and government securities. The interest rate charged on this facility is 200 basis point lower than the repo rate.

As on February 29, 2020, all states combined had Rs 12.88 lakh crore in CSF, Rs 7,407 core in GRF, Rs 662 crore in government securities and Rs 48,102 crore in ATBs, totalling Rs 18.5 lakh crore.

"Several states have already deferred a part of the salary of state government employees. In such a situation, Ind-Ra believes the central government will have to do the heavy lifting of raising money and pass it on to the state governments for expenditure," the report said.

The report said that the spread on state development loans auctioned on April 13 for a 10-year period was in the range of 110-115 basis points. For Kerala, the spread on 15-year state development loan widened to over 200 basis points.

The Reserve Bank of India (RBI) on April 17 increased the WMA limit for state governments and Union Territories by 60 percent to plan their borrowing better on April 17.

The report observes that the WMA relief is too little to help, as it means additional liquidity of just Rs 19,335 crore.

"Most states may be able to make payments in April 2020 using reserve funds, enhanced WMA limits, and other revenues. However, if the revenue sources of the states remain weak even in May 2020, it will be difficult to make committed payments," the report said.

State governments earn their revenue through SOTR (which includes revenues earned through – sales tax, state excise duty, SGST, land revenue, stamps and registrations etc), share in central taxes, and grants from the Centre.

"During the lockdown period, SOTR has declined significantly, barring some sale of petroleum products and state goods and services tax on non-discretionary spending," the report said.