Covid to affect states’ fiscal consolidation plan in FY22: Icra

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May 28, 2021 4:00 AM

“Nevertheless, we expect state GST (SGST) collections to nearly double to Rs 1.7 lakh crore in Q1 FY22 from Rs 0.9 lakh crore in Q1 FY21, boosted by the record-high inflows in April 2021 that had reflected the healthy economic activity in March 2021.”

SS Mallikarjuna Rao, MD and CEO, Punjab National Bank, said: “The announcement of on tap-liquidity facility of Rs 15,000 crore will ensure credit flow to the contact-intensive sectors and MSMEs, including hotels, tourism, aviation, etc. which have been adversely impacted.”SS Mallikarjuna Rao, MD and CEO, Punjab National Bank, said: “The announcement of on tap-liquidity facility of Rs 15,000 crore will ensure credit flow to the contact-intensive sectors and MSMEs, including hotels, tourism, aviation, etc. which have been adversely impacted.”

The second wave of Covid-19 will weigh upon goods and services tax (GST) collections and states own tax revenues (SOTR) in FY22 as infections are seen curtailing the consumption of discretionary items and contact-intensive services, rating agency Icra said on Thursday.

“The data for the generation of GST e-way bills confirm that the staggered onset of the localised lockdowns has had an adverse impact on economic activity since April 2021. This will result in a sequential slowdown in the GST collections that will be reported in the subsequent two months,” Icra’s chief economist Aditi Nayar said.

“Nevertheless, we expect state GST (SGST) collections to nearly double to Rs 1.7 lakh crore in Q1 FY22 from Rs 0.9 lakh crore in Q1 FY21, boosted by the record-high inflows in April 2021 that had reflected the healthy economic activity in March 2021.”

For FY22, Icra has projected SGST collections of all the states at Rs 6.1 lakh crore, trailing the protected revenues of Rs 8.7 lakh crore. This indicates a GST compensation requirement of Rs 2.65 lakh crore, only 38% of which may be met through the GST compensation cess. “If the balance Rs 1.65 lakh crore is to be met through back-to-back loans as was the case in FY21, expediting the same could alleviate the states’ anticipated revenue crunch over the next two months,” Nayar said.

Icra said the state governments’ FY22 budgets had projected a welcome fiscal consolidation after the pandemic-induced disruption in FY21. However, most of these budgets were published before the second surge in Covid-19 infections, which has reignited uncertainty regarding growth and fiscal outlook. The rating agency expects actual fiscal outcomes to vary considerably across the states in the current year, depending on the impact of infections, restrictions and vaccinations on regional economic activity.

After a sharp fiscal deterioration in FY21, the Budget Estimates (BE) for FY22 of 24 state governments had indicated a decline in their aggregate revenue deficit to Rs 1.2 lakh crore, similar to the pre-Covid-19 level of Rs 1.3 lakh crore in FY20. This benefited from the 24.7% increase forecast in their revenue receipts in FY22 BE, compared to the 12.4% growth in their revenue expenditure, Icra said.

“The anticipated shrinking of the revenue deficit allowed the states to plan for a substantial 34.1% expansion in their capital expenditure and net lending, while still attempting a modest correction in their fiscal deficit to Rs 7.6 lakh crore in FY22 BE from Rs 8.7 lakh crore in the Revised Estimates (RE) for FY2,” Nayar said. The capital spending budgeted by certain state governments for FY22 appears optimistic, she said.

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