Rs. Weighing risk of a 6 trillion deficit

Mumbai, Ta. 25 August 2020, Tuesday

According to an SBI report, the country's states will experience a revenue shortfall of Rs 3 trillion in the current financial year due to the slow recovery of the economy and declining revenue as a result of the Corona epidemic. In addition, the state's coffers are expected to be hit by an estimated Rs 2.50 trillion in the current financial year, given the reduction in the share of revenue through central taxes and the additional costs of corona control.

The combined revenue from GST, value added tax, stamp duty and other sources showed a loss of Rs 1.50 trillion to the states in the June quarter. This is an annual figure of Rs 3 trillion, according to the bank's report. Thus, in the current financial year, the states will have to pay a total of Rs 2.50 trillion.

To compensate for the revenue shortfall, the states will carry out 3% more borrowings this year as compared to last year. States may also be forced to cut their capital spending by as much as 20 per cent.

The Center has allowed the states to borrow more money from the market in view of the loss in revenue. States are expected to raise an additional Rs 2.5 trillion.

However, states will have to meet certain conditions to raise additional funds. According to the report, only six states can comply with these conditions.

GST Compensation Cess is a major source of revenue for the states from the Center. The Center has recently completed the payment of last financial year's compensation and is not able to pay the cess in the current year.

It may be mentioned here that the economic impact of Corona has hit the Centre's revenue through GST hard. In view of this fact, the central government also decided to raise more money from the market in the current financial year.