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

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