COVID-19 impact: State Budget figures likely to undergo massive revision

State’s tax collection is expected to slow down in view of the 21-day lockdown

A painting depicting novel coronavirus by Kuncha Kalavidhara Sangha in Mysuru. All major revenue-generating departments are closed during the lockdown.

The numbers of the Karnataka Budget for 2020–21 are expected to undergo massive revision as the State government will have to set aside higher allocations for expenditure, especially in social sectors such as health, sanitation, drinking water, and subsidised distribution of food.

Following the 21-day lockdown in March–April, the State’s tax collection is expected to slow down both in the previous financial year as well as in this financial year (2020–21).

Though the Finance Department is yet to assess the impact of the slowdown in tax collection owing to COVID-19 outbreak, it is a fact that all major revenue-generating departments such as stamps and registration, motor vehicles, and excise are closed during the lockdown period. Like other States, Karnataka too has been facing cash problem, sources in the government admitted.

Owing to severe shortage of cash, the government has come out with an order restricting its expenditure to most essential items such as salaries, social security pensions, food security, and basic administrative costs. The government has also refrained administrative departments from issuing orders on new schemes announced in the State Budget 2020–21.

“Needless to say, all expenditure on fighting COVID-19 will be given utmost priority,” the Finance Department said in the order laying out guidelines on release of funds and delegation of financial powers in April.

The government, however, is expected to permit expenditure under the Arogya Kavacha scheme, purchase materials and supplies for the Health and Family Welfare Department, particularly during this “health crisis” period.

The government has allowed servicing of loans availed of by various boards and corporations with some conditions. The boards and corporations have been asked to submit its cash position to the Finance Department. However, the government has barred departments from purchasing new vehicles, furniture or taking up any major repairs of buildings during the month.

Officials maintained that actual adverse impact of COVID-19 on State finances would be known in the later part of this month or early next month, depending on the ground situation.

Fiscal deficit

State Bank of India’s research report ‘Ecowrap’ has assessed that the combined fiscal deficit of 19 States could jump to 3.5% of gross State domestic product (GSDP) from the budgeted 2.04 per cent for the financial year 2021.

‘Ecowrap’ stated that the State finances look fragile and the Centre should compensate them in the financial year as part of a larger COVID-19 package. The assessment is based on a study of Budgets presented by 19 States.