Three key factors which will decide states’ fiscal fate as coronavirus takes a toll on economy

States with higher patient count and returning migrant workers are expected to face a sharp increase in their expenditure in the current fiscal.

states revenue, sdl, state development loan, ICRA, VAT, sales tax, excise, customs duty

With the rising number of cases related to coronavirus, the government’s revenue is being drained away in healthcare and the states with higher patient count and returning migrant workers, are expected to face a sharp increase in their expenditure in the current fiscal. It is estimated that the gross State Development Loans (SDL) issuance to the states may expand by 19-23 per cent to nearly Rs 7.6-7.8 lakh crore in FY21, from Rs 6.3 lakh crore in the last fiscal, according to a report by ICRA. On the other side, cautious spending on non-essential goods and services is expected to keep the states deprived of the revenue, including SGST.

In addition to SGST, the lockdown is also expected to adversely impact the other components of states’ own taxes, including sales tax / VAT on petroleum products, excise duty collections, and motor vehicle tax. “State governments, which have derived a substantial proportion of their revenue receipts from GST compensation in the recent years, could face a larger revenue and liquidity risk, as the GST cess collections would be adversely impacted in FY2021,” said Jayanta Roy, Group Head – Corporate Sector Rating, ICRA.

Also Read: India spending more on healthcare now, but yet not as much as others; here’s how much US, China spend

Due to lower sales of many discretionary items, such as automobiles, on which the cess is levied and collected by the government, it is expected that the cess collections will remain muted in FY21. This is likely to make it harder for the centre to timely release the GST compensation to the state governments. Meanwhile, Maharashtra, Tamil Nadu, Delhi, Telangana, and Kerala have the highest number of Covid-19 patients. 

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