Covid-19 impact: States stare at Rs 6-trillion fiscal hole, says SBI report

States would possibly lose Rs three trillion in their very own revenues this yr due to the pandemic and the sluggish restoration of financial exercise, State Bank of India stated in a report.

Add to that the share of the Centre’s tax revenues and extra expenditure misplaced, and states could possibly be staring at a lack of Rs 6.2 trillion in monetary yr 2020-21 (FY21), the report stated.

“Combining the loss in value-added tax, stamps duty and other sources with the loss in state goods and services tax (SGST), major states are going to lose Rs 1.2 trillion in the June quarter, and the annualised loss in own revenue could be close to Rs 3 trillion,” stated Soumya Kanti Ghosh, chief economist at the financial institution.

States are borrowing extra this yr — 56 per cent greater than a yr in the past — to stability income losses. However, until the Centre transfers GST compensation cess and funds allotted for catastrophe response, states may need to chop capital expenditure by 40 per cent of the budgeted quantity of Rs 7.5 trillion, the report stated.

To deal with the income loss, the Centre has elevated states’ borrowing limits, which probably opens up the valve for further sources of about Rs 4.28 trillion.

But this rest comes on assembly 4 circumstances, considered one of them being the implementation of One Nation One Ration card.

According to SBI analysis, solely eight states will have the ability to fulfil all the standards, the report stated.

One essential supply of funds for state governments is the switch of GST compensation cess from the central authorities. But the Centre accomplished the cess switch of FY20 solely just lately, and has contended that it’s in no place to compensate for GST losses for this monetary yr.

The report extrapolated the income losses within the June quarter to the total monetary yr. It pegged the GST loss at Rs 65,000 crore, and loss on account of VAT, state excise, and stamps responsibility at Rs 53,000 crore, totalling Rs 1.18 trillion. Extrapolating it to FY21, the annual loss may attain a large Rs three trillion.