Accounting for a decline in the states’ own tax revenue, combined with the likely loss in state goods and services tax (SGST), the expected drop in revenue from the Centre and the additional expenditure by the states, their total expected loss stood at Rs 6.2 lakh crore for FY21, the report said.
However, of the increased state borrowing limit of Rs 4.28 lakh crore, states would only be able to borrow an additional Rs 3.13 lakh crore owing to the conditions set by the Centre, it said.
Only eight states were in a position to fulfill all the conditions for the additional borrowing at 2% of gross state domestic product (GSDP), according to the report, which leaves the states with an uncovered annual loss of Rs 3.1 lakh crore on aggregate, it said.
In May, as part of the Atmanirbhar Bharat package, the Centre permitted additional state borrowing over the existing 3% of GSDP limit. This was subject to conditions linked to universalisation of One Nation-One Ration Card, ease of doing business, power distribution and urban local body revenues.
While total GST collections for the first quarter stood at 59% of the revenue collected during the same period last fiscal, the overall SGST and allocated Integrated GST was Rs 64,703 crore or 47% less than the revenue in FY20.
“One way to bridge the gap is a direct transfer of the combined full amount of Rs 54,000 crores from State Disaster Response Fund (SDRMF) and National Disaster Response Fund (NDRF),” SBI Research said.
As of May 27, Rs 11,170 crore was released from the SDRMF against a budgeted 28,983 crore for FY21. Of the Rs 25,000 crore in the NDRF, Rs 1,624 was released, it said.
Further, at least 50% of the remaining Rs 2.5 crore should be addressed through another hike in the ways and means advances (WMA) and Reserve Bank of India (RBI) support through open market operations apart from a relaxation on the conditions imposed on additional borrowing, it said.
In April, as part of its second tranche of measures to deepen credit availability, the RBI increased the WMA limit available to states by 60% for the first half of the fiscal, which will come to a close next month.
“We must appreciate that the states are the most vulnerable as they have limited source of own tax revenue,” the report said.
Apart from improving healthcare services, the transfer of funds to states would enable immediate payments to government contractors, which in turn would also boost employment and demand, the report said.