The lockdown caused 21 major States to suffer a collective revenue loss of about ₹ 97,100 crore for the month of April alone, according to estimates from India Ratings and Research (Fitch Group).
“Both Union and State governments are struggling due to the dried-up cash inflow but the problems of States are more precarious because the actual battle against the COVID-19 and the associated expenditure being incurred by them,” said India Ratings’ Associate Director Anuradha Basumatari.
“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,” she said, adding that this situation is pushing state governments to adopt austerity measures and also explore new revenue generation pathways.
States such as Gujarat, Telangana, Haryana, Karnataka and Tamil Nadu get more than 70% of their revenue from their own sources, and will be the worst impacted. Maharashtra and Kerala also get almost 70% of their revenue on their own.
States’ own revenue mainly comes from seven heads –State Goods and Services Tax (SGST), State VAT, mostly on petroleum products, State excise, mostly on liquor, stamps and registration fees, vehicle tax, tax and duty on electricity, and own non-tax revenue.
Despite the lockdown, nearly 40% of the economy considered “essential” was allowed to remain operational, allowing some revenue to accrue to State governments under these heads, including 40% of SGST, 30% of State VAT, and 10% each of the electricity tax and non-tax revenues, said the India Ratings analysis, based on States’ 2019-20 budgets.
“Things may improve somewhat in May 2020 due to the easing of some restrictions – allowing the liquor sale being the most prominent one. Thus, a number of States while allowing the sale of liquor have raised the associated excise duty. Also, some states have raised VAT on petrol and diesel,” said the report.