Coronavirus impact | Lockdown to hit state govt's finances worse than Centre

A bulk of any state government’s revenue comes from indirect taxes levied on fuel, automobile sales, alcohol sale, real estate transactions, entertainment industry, etc -- all of which have been hit by the coronavirus lockdown

Moneycontrol News

April 03, 2020 / 14:39 IST

The 21-day nationwide lockdown announced by Prime Minister Narendra Modi on March 24 to combat coronavirus will possibly affect state finances worse than that of the Centre in FY20 and FY21.

A Business Standard report states that this will happen because a bulk of any state government’s revenue comes from indirect taxes levied on fuel, automobile sales, alcohol sale, real estate transactions, entertainment industry, etc. Given the lockdown and the infection itself has frozen or reduced the momentum of most economic activities related to these for a month now, state revenues are bound to take a massive hit.

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If we compare this to the central government's revenue earnings — a lot of which come from personal and corporate income tax, and manufacturing and import of goods — we can see that the lockdown wouldn’t impact it as adversely. In fact, in all likelihood, there will be a rebound in most of these sectors once the lockdown is lifted.

Confirming this, G Chokkalingam, Founder and Managing Director, Equinomics Research and Advisory Services, said: “States’ revenues largely come from taxes on various transactions that are down adversely, affecting their revenues during the lockdown. In contrast, taxes on income and manufacturing account for a large part of central government finances.”

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