Lockdown impact: 21 states may incur a loss of ₹97,100 crore in one month, says report

Due to the lockdown, 21 states may incur a huge loss of ₹97,1000 crore collectively in just one month, claimed a report.

According to the India Ratings and Research (Ind-Ra), India's most respected credit rating agency, states such as Gujarat, Tamil Nadu, Telangana, Haryana and Karnataka will be the worst affected due to the lockdown in terms of revenue generation as these states generate almost 70 percent of their revenues on their own.

As per Ind-Ra, though the Central and the state governments both are likely to incur huge losses due the lockdown, the situation is more precarious for states because they are bearing the cost of the fight against COVID-19 pandemic.

Saying that the loss in the revenue will push the state governments to adopt austerity measures and search for new pathways to generate revenue, Anuradha Basumatari, associate director of Ind-Ra said that sources of the revenues in states have fallen to the abysmally low levels.

However, liquor sale may states improve their situation after May, said the report.

“Things may improve somewhat in May 2020 due to the easing of some restrictions – allowing the liquor sale being the most prominent one. Thus, a number of states 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 adversely impact the revenue performance of all the states, those with a high share of 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,” reads the report.

“States own revenue mainly comes from seven heads – state goods and services tax (SGST), state VAT (mainly petroleum products), state excise (mainly liquor), stamps and registration fees, tax on vehicle, tax and duty on electricity and own non-tax revenue…Despite the lockdown, nearly 40% 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%), state VAT (30%), tax and duty on electricity (10%) and own non-tax revenue (10%). Even after making these adjustments, states are faced with a significant revenue loss in April 2020,” said the report.