States Likely To Witness Loss Of Around Rs 3 Lakh Crore In Annual Tax Revenue On Covid-19

According to the latest edition of State Bank Of India's Ecowrap, the states are likely to witness a decline of Rs 3 lakh crores in Own Tax Revenue. A very basic assumption of loss of an entire month's revenue in components like State VAT, excise, stamps and registration will bring down the revenue for Q1 FY21 at around Rs 53,000 crore. Combining this estimate with the loss in SGST estimate in Q1 shows that major states are going to lose around Rs 1.2 lakh crore in the first quarter itself, translating into an annual Rs 3 lakh crore loss. The report estimates an additional Rs 1.5 lakh crore revenue loss from Centre. Taking into account, the additional expenditure of States of Rs 1.7 lakh crores, the total loss thus comes to around Rs 6.2 lakh crores for the major states.

Against this background, the Centre has decided to accede to the request of the States and increase borrowing limits of States giving extra resources of Rs 4.28 lakh crore. The research report suggests that only 8 states are in position to fulfill all the conditions of Government and can avail 2% of GSDP as extra borrowing. Hence out of Rs 4.28 lakh crore, that only Rs 3.13 lakh crore (73% of total available) might be actually borrowed by the State Governments in FY21, keeping a uncovered gap of Rs 3.1 lakh crores for states at this point of time, according to the Ecowrap.

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