States to lose Rs 6.2 lakh crore revenue due to the pandemic

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According to the research conducted by the State Bank of India, the conditions set by the Centre to raise additional borrowing have been met only by eight states. Most of the remaining states are likely to face financial stress if they are incompetent to borrow more or are not offered support by other means.

The eight states that have met the conditions of the Centre are Tamil Nadu, Maharashtra, Karnataka, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, Gujarat, and Haryana. During May, as part of the Atmanirbhar Bharat package, the Centre had allowed states to borrow up to 2% of their gross state domestic product over and above the existing 3% limit.

This scheme was, however, subject to the states implementing certain reforms such as universalization of one nation-one ration card, measures relating to power distribution, measures to improve ease of doing business, and urban local body revenues.

Soumya Kanti Ghosh, the Group Chief Economic Adviser at SBI said that the SBI research indicates that only eight states are in a position to satisfy all the conditions of government and can gain 2% of GSDP as extra borrowing. The additional borrowing was to aid states to bridge the sharp drop in revenues due to Covid-19.

SBI Research indicates that states would together lose Rs 6.2 lakh crore revenue to the pandemic in FY21. The extra borrowing would have allowed states additional Rs 4.18 lakh crore.SBI Research estimates states would be able to borrow only Rs 3.13 lakh crore or 73 percent of the increased borrowing limit of up to Rs 4.28 lakh crore during the ongoing fiscal.

This shows that they will have an uncovered gap of about Rs 3.1 lakh crore. SBI Research suggested that one way to bridge the gap is a direct transfer of the collective full amount of Rs 54,000 crore from and National Disaster Response Fund (NDRF) and State Disaster Response Fund (SDRMF).As of May 27, Rs 11,170 crore was discharged from the SDRMF against a budgeted Rs 28,983 crore for FY21. Of the Rs 25,000 crore in the NDRF, Rs 1,624 crore was released.

Further, at least 50% of the remaining Rs 2.5 lakh crore should be attended through another hike in the Ways and Means Advances (WMA) and Reserve Bank of India (RBI) support through open market operations apart from a relaxation on the conditions imposed on additional borrowing, it said.

In April, as part of its second portion of measures to deepen credit availability, the RBI increased the WMA limit available to states by 60% for the first half of the fiscal, which will end next month.

The SBI report concluded by saying that we must appreciate that the states are the most vulnerable as they have limited source of own tax revenue

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