Economy

Covid-19 impact: Budget numbers of States need major revisions, says SBI report

Our Bureau Mumbai | Updated on March 31, 2020 Published on March 31, 2020

Urges Centre to discard fiscal prudence for now

The Budget numbers of States for FY21 will undergo massive revisions as they will have to step up expenditure, especially in social sectors such as health and sanitation, even as tax collections slow down, due to the novel coronavirus outbreak, warned State Bank of India’s research report “Ecowrap”.

The report also appealed to the Centre to spend and not to give into misguided fiscal prudence, as India can only escape from the current crisis through an “overbearing” fiscal policy.

The report assessed that the combined fiscal deficit of 19 States could jump to 3.50 per cent of gross state domestic product (GSDP) from the budgeted 2.04 per cent for FY2021.

Ecowrap said the State finances look fragile and the Centre should compensate them in FY21 as part of a larger Covid-19 package.

The assessment is based on a study of budgets presented by 19 States so far — Assam, Bihar, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh, Uttarakhand, and West Bengal.

“Indian States have presented their respective budgets beginning February oblivious to the looming threat the coronavirus posed to the entire world, including India. However, the novel coronavirus has thrown everyone in a tizzy,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

The report underscored that the fiscal deficit projection for FY21 at 2.04 per cent for these States is unachievable as they need to step up spending to grapple with the slowdown due to the Covid-19.

“At 5-10 per cent GST growth, the shortfall in GST could be as much as ₹75,000 crore, that needs to be compensated by the Centre. Second, the States have already committed an extra expenditure of ₹30,000 crore.

“Third... even if we take the 2018-19 GSDP data and assume that States spend 1 per cent of this GSDP extra, it will be an additional expenditure of ₹1.6-lakh crore. All these could push the State fiscal deficit... unless backed up by capital expenditure cuts,” said Ghosh.

The report said it will be complete foolhardy to practice fiscal austerity as of now.

“Covid-19 is making us take a hard look at the way we have shaped this world. Low spending on health and education and other social sectors is biting now and we have to take a hard look going forward as to what our priorities should be,” the report said.

The Centre must also support the States wholeheartedly in such an endeavour, it added.

Published on March 31, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.