About 21 major states are staring at an estimated collective revenue loss of around Rs 9.71 lakh crore for April alone due to the novel coronavirus, or COVID-19, led lockdown.
"In fact, the disruption to the production, breakdown of supply chains/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 normalise until Q2 FY21," according to a report published by India Research and Ratings.
Though both the Centre and states are struggling with loss of production and revenue, the problems of states are more precarious because the actual battle against the COVID-19 and the associated expenditure being incurred by them.
"Under the current circumstances, there is a fair amount of uncertainty regarding the quantum and timings of the 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 revenue," the report said.
States own revenue mainly consist of seven heads – state goods and services tax (SGST), state VAT (mainly petroleum products), state excise (mainly liquor), stamps and registration fees, tax on vehicle, tax and duty on electricity and own non-tax revenue. The report takes into account the revised estimate of state budgets for 2019-20 of all the major states to calculate the likely revenue loss to them.
As essential services were operational, nearly 40 percent of the economy was functional. Therefore, some amount of revenue did accrue to the state government under the head of SGST (40 percent), state VAT (30 percent), tax and duty on electricity (10 percent) and own non-tax revenue (10 percent), according to the report.
"Even after making these adjustments, states are faced with a significant revenue loss in April," the report said.
Things may improve somewhat in May with the allowing of sale of liquor. A number of states have raised associated excise duty and some states have raised VAT on petrol and diesel.
States with a high share of own revenue in the total revenue would be the worst impacted. "In this regard, the states that stand out are Goa, Gujarat, Haryana, Tamil Nadu, Telangana, Karnataka, Maharashtra and Kerala as 65-76 percent of their revenue comes from their own sources," the report said.
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