21 States staring at ₹97,100-crore revenue hit in April: Ind-Ra

Lockdown forced Tamil Nadu, Karnataka, Kerala, Andhra Pradesh, Maharashtra and 16 other major States together to record revenue loss of around ₹971 billion (₹97,100 crore) during the month of April alone, India Ratings & Research (Ind-Ra) has estimated.

In a report prepared by agency’s Associate Director Anuradha Basumatari and Principal Economist Sunil Kumar Sinha, the agency said that Fiscal Year 2020-21 started amid the countrywide lockdown which has brought the economy to a grinding halt. “In fact, the disruption to the production, breakdown of supply chains/trade channels and total washout of activities in the aviation, tourism, hotels and hospitality sectors have taken place with such speed and scale that even if the lockdown is lifted by mid-May, the economic activity is unlikely to become normal until 2QFY21 (July-September, 2020),” the report mentioned.

The sources of State government revenue are SOTR (States’ Own Tax Revenue), share in central taxes, SONTR (States’ Own Non-Tax Revenue) and grants from the Centre. The average proportion (FY2017-18 to FY2019-20) of SOTR in revenue receipts is around 46 per cent; the same for a share in central taxes, SONTR and grants is 26 per cent, 8 per cent and 20 per cent, respectively.

States own revenue mainly comes from seven heads – state goods and services tax (SGST), state VAT (primarily petroleum products), state excise (mostly liquor), stamps and registration fees, tax on vehicle, tax and duty on electricity and own non-tax revenue. The agency analysed the revised estimate of States Budgets for FY20 (2019-20) of all the major states to calculate the likely revenue loss to the major states in India.

Amidst lockdown, nearly 40 per cent of the economy was functional, as economic activities defined as ‘essentials’ were allowed to remain operational. This means that “despite the lockdown, some amount of revenue did accrue to the state government under the head of SGST (40 per cent), state VAT (30 per cent), tax and duty on electricity (10 per cent) and own non-tax revenue (10 per cent). Even after making these adjustments, states are faced with a significant revenue loss in April 2020.”

To mitigate the rising liquidity pressure, the Reserve Bank of India and the union government have announced several measures. Ind-Ra has already opined that it would provide only temporary relief to state governments. Things may improve somewhat in May 2020 due to the easing of some restrictions – allowing the liquor sale being the most prominent one. Thus, many states adversely, while allowing the sale of liquor have raised the associated excise duty. Also, some states have raised VAT on petrol and diesel. “Although the lockdown is going to impact the revenue performance of all the states, those with a high share of its own revenue in the total revenue would be the worst impacted. In this regard, the states that stand out are Goa, Gujarat, Haryana, Tamil Nadu, Telangana, Karnataka, Maharashtra and Kerala as 65%-76% of their revenue comes from their own sources,” the agency said.