Extreme pressure on the fiscal position of the states after Covid-19

Mumbai, Ta. Thursday, October 28, 2020

The spread of Kovid-18 has put unprecedented pressure on the fiscal position of the country's states and the next few years will be challenging for most of the states, a Reserve Bank report said.

Declining demand, the huge financial burden of dealing with the epidemic has resulted in deteriorating financial conditions in many states. The fiscal situation has come under a lot of stress due to the huge disparity between tax revenue and expenditure.

The budgets of the states which were announced before the spread of Kovid-12 have almost been disrupted. The budget presented before Corona saw the average fiscal deficit of the states at 7.50 per cent of the state GDP. But the states that have presented budgets after Corona have seen their fiscal deficits average 7.50 per cent of state GDP, the report said.

How long the fiscal strain on states lasts depends on the duration of the lockdown and whether new waves of infection occur.

Given the fiscal deficit, states will be forced to cut spending on water supply and sanitation, rural and urban development, energy and transportation.

In the first quarter of the current financial year, the states have earned only twenty per cent more than the budget estimate. Taxes on commodities and services remain the main sources of revenue for the states. In addition, the slowdown in construction activity has also hit revenue through stamp duty.

In the first quarter, the state GST fell by 2.50 per cent.