State governments face a huge revenue deficit

NEW DELHI/LUCKNOW: The government has spent more than Rs 12,000 crore to pay salaries and pensions for April, when its income was Rs 2,284 crore. It is shocking, but the state cannot compromise people's lives, UP finance minister Suresh Khanna told TOI in response to low tax revenues.

It's a similar story in Punjab, where the salary and pension bill totaled Rs 3 billion rupees in April and there was an equal amount spent on debt service, while total earnings were Rs 200-250 million rupees. “There was not a single bottle of alcohol sold and there are practically no sales of gasoline or diesel. We earn around Rs 10 crore per day with the stamp and registration tax, which is not there, and consumption is what it is, is leading to almost zero GST. But there are higher spending requirements from the aid and rehabilitation and medical departments, the finance minister told TOI.

The state is observing a deficit of Rs 8,000-9,000 crore in the first three months of 2020-21 and even if things normalize, revenue would be around Rs 20,000 crore less than Punjab had expected in the nine months remaining. In the face of a severe cash crisis, the state government has advanced its loans and is turning to investors to raise money now, rather than August or September. The story is similar in all states.

By all accounts, GST collections for March sales, which are due on Tuesday, may represent around 30% of the prior year period when they were estimated to be around Rs 1.14 lakh crore.

In addition to GST and a portion of the Center's tax kitty, the top contributors to state revenue include the value added tax (VAT) on fuel, excise duties on liquor, property tax, and the excise tax. the vehicles. On all fronts, tax revenue has virtually stopped, prompting several states to open liquor sales in hopes of generating a special tax to keep the administration running.

With lower tax collections, the refund to the states would be almost Rs 1.8-2 lakh crore lower compared to FY21 Budget estimates. The state's own taxes, which accounted for about 44% of the states' total revenues (and amounted to Rs 12 lakh crore) in fiscal year 19, could also see an adverse impact of up to 10%. While states' revenues would be lower by at least Rs 3-3.5 lakh crore than otherwise, higher spending would lead to an expansion of their deficit, and therefore the need to borrow more, Nikhil said Gupta, analyst at Motilal Oswal.

While states have demanded that their debt ceiling be increased by allowing them to exceed the prescribed fiscal deficit from 3% of GDP to 5% of GDP, they expect the Center to clarify their laws. For its part, Center officials said, the RBI has allowed states to raise more funds through forms and advances, which are short-term loans, in addition to freeing money in the form of central tax refunds and deficit subsidies from income, to keep the states going. But states and analysts say it is not enough.