The fiscal deficit of states soared to more than double in the first quarter of the current fiscal amid the coronavirus-led revenue loss. While the states spent 18.4 per cent of the budget estimates, similar to that in the previous years, the fiscal deficit was 36.5 per cent of BE in Q1, which was more than double of that in the previous years, said the Ecoscope report by Motilal Oswal Institutional Equities. The fiscal deficit was around 70 per cent of BE in Kerala and Andhra Pradesh in the first quarter and more than 50 per cent of BE in Telangana. In contrast, Jharkhand, Himachal Pradesh, Odisha, and Uttarakhand posted a fiscal surplus in the same duration.
The fiscal deficit rose on the back of a severe fall in revenue as the spendings were subdued. The monthly accounts available for 14 states — together accounting for nearly 63 per cent of all states — showed that the total receipts of the states fell 18.2 per cent on-year in Q1 FY21, while total spending grew by just 2.7 per cent on-year in the quarter.
While the grants from the central government supported the states’ finances up to a limit, the states’ total tax receipts (including center’s devolution) fell 32.1 per cent and non-tax revenue receipts fell 27 per cent on-year in the first quarter of FY21. The collection of stamp duties and registration charges also shrank 58 per cent in the same period, the Ecoscope report showed.
Meanwhile, in the latest GST council meeting, Finance Minister Nirmala Sitharaman gave the states two options — either borrow the compensation amount arising from the implementation of GST (Rs 97,000 crore) or the entire shortfall (Rs 2.35 lakh crore). The centre had earlier promised to pay the GST compensation to states, however, with the coronavirus pandemic taking the front seat now, the centre had indicated that it cannot compensate for the loss due to Force Majeure.