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Coronavirus lockdown and the state of State finances

Coronavirus | Lockdown chokes Maharashtra’s economic lifeline

The industrial hub faces a massive shortfall in revenues amid growing cost of combating the pandemic

May 08, 2020 10:22 pm | Updated May 09, 2020 02:29 am IST - Mumbai

Police officers march on a street in Dharavi, one of Asia’s largest slums, after the extension of lockdown in Maharashtra, in Mumbai. File

Police officers march on a street in Dharavi, one of Asia’s largest slums, after the extension of lockdown in Maharashtra, in Mumbai. File

Announcing that Maharashtra’s financial condition has deteriorated to the extent that it could not even afford to go ahead with annual transfers of government employees in the ongoing fiscal, the State’s Finance Department on Monday said there will be no new projects nor will new construction work be undertaken in the financial year 2020-21, in an effort to reduce expenses.

The State government also announced that all ongoing works except pre-monsoon necessities, will not be allocated any funds.

Also read: COVID-19 | Maharashtra continues to see surge in cases

The government also said the salary for March for A, B and C class government employees will be paid in two instalments. Directions have also been issued to stop new recruitment as well as cancelling purchase orders or new tenders.

Revenues slump

According to data available with The Hindu , the revenue received by the State through non-GST sources in April in financial year 2018-19 and 2019-20 was ₹7,829.44 crore and ₹8,251.2 crore, respectively. However, this year, the receipts for April are barely ₹3,314.42 crore. Of this, the major contribution comes from Sales Tax on fuel which is around ₹2,299.82 crore. Stamp duty from registrations brought in ₹269.35 crore and excise duties another ₹237.5 crore.


According to officials, the State was expecting the revenue around ₹3,500 crore, ₹2,400 crore and ₹1,200 crore in April from sales tax, stamp duty and excise.

Also read: Coronavirus | Maharashtra govt. ‘suppressing’ enormity of COVID-19 pandemic, says Devendra Fadnavis

The State has also not received its GST refund worth ₹16,654 crore from the Centre, which was due before March 31. Maharashtra Deputy Chief Minister and Finance Minister Ajit Pawar has since sent three reminders to the Union Finance Ministry seeking co-operation from the Centre.

He has also sought a special package of ₹25,000 crore from the Centre for Maharashtra, given the massive losses suffered by the highly industrialised State due to the coronavirus outbreak.

Despite the crippling impact of the lockdown and the mounting healthcare costs. the Centre has so far released just ₹1,611 crore ‘in advance its share of first instalment of State Disaster Relief Management Fund for the year 2020-21.’

The State government has said the amount will not be enough given the extent of the disaster. Sources within the government mentioned that apart from ₹1,611 crore and medical equipment required to treat corona patients, including 1.49 lakh N-95 masks, around 17 lakh triple layer masks and 30,480 PPE kits, the State has received no help from the centre.

Also read: Coronavirus | Maharashtra to ramp up fight after Centre’s report

Though Maharashtra has not announced any relief package so far, it has become the first State in the country to provide free and cashless insurance protection to its citizens. The Mahatma Jyotiba Phule Jan Aarogya Yojana (MJPJAY) will now cover government, semi-government employees and as well as white ration card holders. The government has made COVID-19 tests and treatment free and capped the disease’s treatment at private hospitals.

The State has also set up a special website for industries to seek clearances to resume work. Till May 5, the government had received 38,363 applications out of which 12,336 have already gone in operation.

In view of the crisis, the State’s Power Department has decided to reduce power tariff on an average by 7% for consumers. For the industrial and commercial consumers, the reduction in tariff would be 10-15%, while for residential consumers, it would be 5%.

Further, for the next three months, industrial and commercial consumers will not have to pay fixed charges. There will be no increase in tariff for agriculture consumers, and those using power derived from solar roof sources will not have to pay any additional charges.

Also read: Coronavirus: Highest 24-hour surge in Maharashtra; tally touches 302

Maharashtra government has formed two committees — one of experts and another of ministers to tackle the financial recovery of the State in post-corona times.

At its first meeting, the bureaucrats’ panel recommended that the State government rethink the budget estimates, especially about borrowing and expenditure. It observed that with March and April gone, the State is already staring at a shortfall of around ₹45,000 crore in revenue receipts. It also observed that receipts through GST collection are also likely to be hit by 30%.

Increased borrowing

The State is also considering to raise its debt limit. In 2020-21, it is expected to cross ₹5.20 lakh crore which will be 16.15% of the Gross State Domestic Product (GSDP). The idea to raise the limit by 2% is currently being discussed to tackle the expected shortfall of revenue receipts. It is being justified on the basis that the State spends 55.11% as fixed expenditure on salaries, pension and interests on loans. The State spends approximately ₹12,000 crore per month on salaries.

Also read: Coronavirus | More healthcare workers test positive in Mumbai

Former Union minister Sharad Pawar has estimated that Maharashtra is going to face a shortfall of ₹1,00,000 crore to sustain its projected expenditure in FY 2020-21 and sought help from the Centre in the from of additional grants of an untied nature.

As per the budget presented on March 6, 2020, the State was already staring at a revenue deficit of ₹9,510.71 crore. With financial activity closed down for over 40 days now and all source of revenue dried up the deficit is likely to soar.

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