JOIN USCOVID-19: State Budgets would undergo massive revisions, says SBI Ecowrap
As COVID-19 pandemic strikes deep into the Indian economy, the state governments will have to step up expenditure, especially in the social sectors like health and sanitation, with a shortfall in tax collections.
According to the report of the State Bank of India's Economic Research Department authored by Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, Indian states have presented their respective budgets beginning February oblivious to the looming threat COVID-19 posed to the entire world, including India. However, the disease has thrown everyone in a tizzy.
"The recent state budgets numbers will undergo massive revisions owing to these circumstances. The Governments will have to step up expenditure, especially in the social sectors like health and sanitation, with a shortfall in tax collections. This will push state fiscal deficit above 3% in the coming year," the SBI Ecowrap report states.
The SBI has analysed the data for 19 states and the combined fiscal deficit as a percentage of GSDP for these states is at 2.56% for FY20, which is lower than the FRBM target of 3%.
However, it is significantly more than the Budgeted estimate of 2.06%.
The reduced revenue receipts, owing to a reduction in share of central taxes, by as much as Rs 1.26 lakh crores has impacted the fiscal deficit. The Budgeted amount was Rs 7.12 lakh crore in FY20. However, these states got Rs 5.86 lakh crores only.
The states’ own tax collection has also grown by only 1.6% from FY19 Actuals.
However, sharp capital expenditure cuts have helped the states in maintaining a respectable fiscal deficit number. Also, the higher GSDP numbers have provided support.
The fiscal deficit projection for FY21 at 2.04% for these states is unachievable as states grapple with the slowdown due to the COVID-19, all the while stepping up spending.
First, the GST collections are estimated at 17% in FY21, as against a decline of 11% in FY20. At 5-10% GST growth, the shortfall in GST could be as much as Rs 75,000 crores, that needs to be compensated by the Centre. Second, the states have already committed an extra expenditure of Rs 30,000 crores. Third, when we look at the estimated health expenditure as % of estimated GSDP in FY21, it is not crossing even 2% for any of these 19 states.
The recent outbreak of COVID-19 shows the cracks in the existing health infrastructure. A recent study using the data of National Health Proflie-2019 shows that there are 7,13,986 total government hospital beds available in India. This amounts to 0.55 beds per 1000 population. The same report shows that among the various communicable diseases reported by the States/UTs during the year 2018, Acute Respiratory Infection accounts for 69.47% of the Percentage distribution of Morbidity Reported in Communicable Diseases.
"Thus a massive chunk of the population is vulnerable and health expenditure has been inadequate to handle such situations. So states have to increase their health expenditure, supported by Centre," it said.
"Even if we take the 2018-19 GSDP data and assume that states spend 1% of this GSDP extra, it will be an additional expenditure of Rs 1.6 lakh crore. All these could push the state fiscal deficit from budgeted 2.06% to 3.5% of GSDP, unless backed up by capital expenditure cuts," states Dr Ghosh in the report.